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Tension Envelope Corporation v. Jbc Envelope Co.

United States District Court, W.D. Missouri, Western Division

March 3, 2015

TENSION ENVELOPE CORPORATION, Plaintiff,
v.
JBM ENVELOPE COMPANY, Defendant.

ORDER

FERNANDO J. GAITAN, Jr., District Judge.

Currently pending before the Court is defendant JBM Envelope Company ("JBM's") Motion to Dismiss (Doc. # 25), JBM's Motion to Dismiss plaintiff's First Amended Complaint (Doc. #36) and plaintiff Tension Envelope Corporation ("Tension's") Motion for Leave to File Second Amended Complaint (Doc. # 65).

I. BACKGROUND

Tension Envelope Corporation is an envelope manufacturer which manufacturers and prints many of its envelopes and contracts with other specialty manufacturers to manufacture envelopes for Tension's customers. JBM Envelope Company was started in 1985, by Greg Sheanshang, a former Tension employee who left Tension to form an envelope brokerage business. In 1989, JBM got out of the brokerage business and became a manufacturer of small open-end envelopes. Tension alleges that JBM told them that it would only sell to the trade and would not sell directly to Tension's customers. Based on these assurances, Tension agreed to use JBM to manufacture specialty envelopes for its customers. Tension alleges that for more than ten years the parties conducted business on these terms. Tension states that it even leased two specialty machines to JBM for it to use in making the specialty envelopes. In 2008, Greg Sheanshang's son, Marcus, purchased JBM from his father. On June 19, 2014, JBM notified Tension that it would begin selling directly to Tension's two largest customers. On June 23, 2014, JBM contacted the buyers for Customers A and B and advised them that JBM had terminated its arrangement with Tension and was now going to sell directly to them. Tension alleges that while it is possible to either directly manufacture these envelopes themselves or contract with specialty manufacturers for the production of these envelopes, it may take up to 12 to 18 months to modify its existing equipment or purchase new equipment.

Tension filed its initial complaint on June 25, 2014 and the same day also filed a motion for temporary restraining order. The motion for a TRO was denied on July 7, 2014. On July 17, 2014, JBM filed a motion to dismiss the Complaint. On July 29, 2014, the Court entered a Scheduling Order and set September 16, 2014 as the date for the hearing on the preliminary injunction motion. On August 7, 2014, Tension filed its First Amended Complaint, which added additional factual details and a claim for unfair competition. On August 19, 2014, JBM filed a Motion to Dismiss Tension's First Amended Complaint. On August 22, 2014, JBM filed a Motion to Stay All Proceedings pending a ruling on the Motion to Dismiss. On September 10, 2014, the Court granted the Motion to Stay noting that the parties were still supplementing their discovery responses and conducting discovery. On September 18, 2014, Tension filed a Motion for Leave to File a Second Amended Complaint. The Court now considers both the Motion to Dismiss the First Amended Complaint and the Motion for Leave to File a Second Amended Complaint.

II. STANDARD

To survive a motion to dismiss under 12(b)(6), "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, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A pleading that merely pleads "labels and conclusions" or a "formulaic recitation" of the elements of a cause of action, or "naked assertions" devoid of "further factual enhancement" will not suffice. Id . (quoting Twombly). "Determining whether a complaint states a plausible claim for relief will... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950. Under Fed.R.Civ.P. 12(b)(6) we must accept the plaintiff's factual allegations as true and grant all reasonable inferences in the plaintiff's favor. Phipps v. FDIC, 417 F.3d 1006, 1010 (8th Cir. 2005).

It should also be noted that Fed.R.Civ.P. 9(b)'s pleading requirements are also applicable in this case.

III. DISCUSSION

A. JBM's Motion to Dismiss Initial Complaint

As noted in the procedural history above, JBM filed its initial motion to dismiss on July 17, 2014. However, rather than file a response to the Motion to Dismiss, Tension filed an Amended Complaint. Therefore, the Court denies JBM's Motion to Dismiss as MOOT (Doc. # 25).

B. JBM's Motion to Dismiss First Amended Complaint

1. Breach of Contract

"The elements of a breach of contract claim are: (1) the existence of an enforceable contract between the parties; (2) mutual obligations arising under the terms of the contract; (3) one party's failure to perform the obligations imposed by the contract; and (4) the resulting damage to the other party." Ancell v. U.S. Bank Trust, N.A., No. 2:13-CV-4251-NKL, 2014 WL 2048200, *7(W.D.Mo. May 19, 2014) citing ( Midwest Bankcentre v. Old Republic Title Co. of St. Louis, 247 S.W.3d 116, 128 (Mo.App.2008)).

In the First Amended Complaint, Tension alleges the following:

• "For more than ten years, Tension Envelope and JBM have performed pursuant to a contract for the sale of goods, evidenced by the conduct of both parties, which recognizes the existence of such a contract." (¶ 63).
• "Throughout this ten-year period, JBM Envelope repeatedly sent signed letters and other written communications that acknowledged the existence of the parties' contract." (¶ 64).
• "Specifically, Tension Envelope and JBM Envelope have engaged in a course of performance whereby they have purchased and sold envelopes on repeated occasions under an agreement in which JBM Envelope agreed to manufacture envelopes to meet Tension Envelope's requirements for sale...." (¶ 65).
• "Pursuant to this contract, JBM Envelope became the exclusive supplier of certain envelopes for Tension Envelope's customers...and JBM Envelope agreed to fill all of Tension Envelope's requirements for these envelopes for these customers.... (¶ 66).

JBM argues that Tension has failed to sufficiently allege the existence and terms of a valid and enforceable agreement. JBM argues that there are no allegations in the Amended Complaint regarding the specific terms of the contract, the rights and obligations of the parties, the duration of the contract, the amounts involved or any agreement that Tension would use JBM as its exclusive supplier or that JBM was prohibited from supplying its envelopes to other customers or to continue supplying Tension. JBM argues that the Amended Complaint is so vague and lacking in factual allegations, that no cause of action is stated.

Tension argues that its contract claims are governed by Article 2 of the UCC, specifically provisions 2-204, 2-208 and 2-306. Tension argues that this provision provides that "[a] contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract." Mo.Rev. Stat. §§ 400.2-204(1). Tension argues that over the ten year course of performance, the parties have evidenced an agreement whereby JBM agreed to supply Tension with specialty envelopes as needed to fill the requirements of Tension's customers. Tension argues that the First Amended Complaint describes the parties' long standing arrangement and course of dealing, and shows that Tension agreed to shut down its own small open-end envelope manufacturing capability, when it agreed to buy all of its requirement for these envelopes from JBM. Additionally, Tension argues that the First Amended Complaint details how JBM was Tension's exclusive supplier for these envelopes. Tension states that it may use this course of dealing as extrinsic evidence to establish the existence of a requirements contract.

Accepting all of Tension's factual allegations as true, the Court finds that Tension has stated a claim for breach of contract. However, the Court finds that there are portions of the Complaint which plaintiff could further expand upon. For example, Tension alleges that over the course of the ten year period, JBM Envelope sent signed letters and other written communications that acknowledged the existence of the parties' contract. However, Tension failed to attach any of these letters or communications to either the first Amended Complaint, or the proposed Second Amended Complaint. It would be instructive to know what was contained in these letters and written communications and to see how the writing reflected the parties' relationship. As the Court noted in Ancell, "[a] complaint alleging breach of contract cannot survive a motion to dismiss if it fails to set out the rights and obligations of the parties under the contract alleged to have been breached." Id. at *7. In that case the plaintiff alleged CitiMortgage breached the terms of the note when it placed hazard insurance on plaintiff's home despite the fact that coverage was provided by plaintiff's insurer. The Court noted that "[p]laintiffs failed to attach the note or identify any specific agreement or provision within the note that dictated when and under what circumstances CitiMortgage could or could not place insurance on Plaintiffs' home and how coverage of the home by Plaintiffs' insurer affected those circumstances." Id . The Court noted that "[v]ague references to unspecified agreements are insufficient to state a claim for breach of contract." Id . (quoting Reitz v. Nationstar Mortg., LLC, 954 F.Supp.2d 870, 884 (E.D.Mo.2013)). Therefore, because the Court finds that Tension has stated a claim for breach of contract, the Court will DENY Tension's Motion to Dismiss Count I of plaintiff's First Amended Complaint. However, in order to allow Tension to properly frame a response to the breach of contract claim, the Court finds that plaintiff shall file an Amended Complaint which provides additional factual details regarding the relationship between the parties, and which also specifies and details the contents of the letters and written communications between the parties. Plaintiff shall file its Second Amended Complaint on or before March 13, 2015.

2. Promissory Estoppel

"A claim of promissory estoppel has four elements: (1) a promise; (2) on which a party relies to his or her detriment; (3) in a way the promisor expected or should have expected; and (4) resulting in an injustice that only enforcement of the promise could cure." Clevenger v. Oliver Ins. Agency, Inc., 237 S.W.3d 588, 590 (Mo.banc 2007).

In Count II, Tension argues that JBM repeatedly promised that it does not and would not sell directly to Tension's customers. (¶ 76). Tension states that the promises are consistent with and include the representations on JBM's website that it sells exclusively to the trade and not to end users. (¶ 77). Tension states that it relied on these representations when it made JBM its exclusive supplier of certain envelopes, discontinued its own small envelope manufacturing capability and shared with JBM the identity of its customers and their unique needs. (¶ 80). Tension states it would not have done so, had it believed that JBM would sell envelopes directly to Tension's customers. Tension states that JBM has now repudiated its promise not to sell to Tension's customers and as a result, Tension has suffered damages. (¶ 82).

JBM argues that the statements on the website were directed to the general public, and were not directed to Tension. Additionally, JBM states that the statements were not "definite promises" but instead were the statements of the current business intentions of JBM. JBM states that it never promised Tension that it would never sell its product to end users. In fact, JBM argues that it has in the past sold its products to end users, and Tension was aware of this. JBM also argues that to succeed on promissory estoppel, the promise must have been definite and must have arisen in a contractual sense. See Meng v. CitiMortgage, Inc., No. 4:12-CV-514 CAS, 2013 WL 1319008, *7 (E.D.Mo. Mar.29, 2013). "A supposed promise that is wholly illusory or a mere expression of intention, hope, desire, or opinion, which shows no real commitment, cannot be expected to induce reliance." Id . (citing City of St. Joseph, Missouri v. Southwestern Bell Tel., 439 F.3d 468, 477 (8th Cir. 2006)). It has also been noted that "[i]n Missouri, promissory estoppel is not a favorite of the law, and each element must clearly appear and be proven by the party seeking its enforcement." Glenn v. HealthLink HMO, Inc., 360 S.W.3d 866, 877 (Mo.App.2012).

Tension argues that in the Amended Complaint, it is alleged that "[w]hen JBM Envelope's founder, Greg Sheanshang, first approached Tension Envelope in or around 2000 about manufacturing envelopes for Tension Envelope, Greg affirmatively and unequivocally represented that JBM Manufacturing did not, and would not, sell direct to Tension Envelope's customers." (FAC, ¶ 21)(emphasis added). Tension argues that JBM acknowledged this promise in a discussion that Tension's President, Bill Berkley had with Marcus Sheanshang on June 23, 2014. Tension alleges in the complaint that when Marcus informed Berkley that JBM intended to terminate the arrangement and would begin selling directly to Tension's customers, Berkley stated, "This is contrary to everything you have told us about not going direct with our customers." Marcus stated that he agreed with that statement. (FAC, ¶¶ 45-46). Tension also alleges that in addition to the statements on its website, JBM directed Tension's representatives to its website to get answers about JBM's business practices. Thus, Tension alleges that JBM intended for it to rely on the representations and promises which were made regarding not selling direct to end users.

When ruling on a motion to dismiss, the Court assumes the truth of plaintiff's factual allegations. Therefore, assuming that Greg Sheanshang told Tension that JBM did not and would not sell directly to Tension's customers, the Court finds that this satisfies the first element that there was a promise made. Secondly, Tension has also sufficiently alleged that it relied on this promise to its detriment. Tension has also sufficiently alleged that when Marcus confirmed that selling direct to Tension's customers was in direct conflict with what JBM had always told Tension, Tension has alleged that it relied on the promise in the way JBM expected it to. Finally, Tension has alleged that this change has resulted in an injustice that only enforcement of the promise could cure. Accordingly, because the Court finds that Tension has sufficiently alleged the elements of a promissory estoppel claim, the Court hereby DENIES JBM's Motion to Dismiss Tension's Claim for Promissory Estoppel.

3. Tortious Interference with Business Relationship

Tortious interference with a contract or business expectancy requires proof of five elements: (1) a contract or valid business expectancy; (2) defendant's knowledge of the contract or relationship; (3) an intentional interference by the defendant inducing or causing a breach of the ...

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