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Lawmen Supply Company of New Jersey, Inc. v. Glock, Inc.

United States District Court, D. New Jersey

June 29, 2018

LAWMEN SUPPLY COMPANY OF NEW JERSEY, INC., Plaintiff,
v.
GLOCK, INC., Defendant.

          JONATHAN LOUIS TRIANTOS, SHAWN C. HUBER, WILLIAM M. TAMBUSSI ON BEHALF OF PLAINTIFF

          JOHN VINCENT TAIT ON BEHALF OF DEFENDANT

          OPINION

          NOEL L. HILLMAN, U.S.D.J.

         This matter arises from a Distribution Agreement between Plaintiff Lawmen Supply Company of New Jersey, Inc. and Defendant Glock, Inc. Before the Court is Defendant's Motion to Dismiss. For the reasons that follow, the Court will grant in part and deny in part Defendant's motion. The Court will grant Plaintiff leave to file an amended complaint.

         I.

         The Court takes its facts from Plaintiff's Complaint. Plaintiff is a licensed distributor of law enforcement products from leading manufacturers to law enforcement agencies. Defendant makes pistols and related products. For over twenty-five years, Plaintiff and Defendant have been in business together. Approximately four years prior to the filing of the Complaint, Plaintiff became a “Glock Only” distributor.

         At the time of the filing of the Complaint, Plaintiff held an exclusive state contract with the State of New Jersey for Glock weapons, and thus all law enforcement agencies within the state were required to purchase Glock pistols from Plaintiff. Plaintiff has had similar contracts with the State of Delaware and the State of Maryland.

         On December 6, 2016, Plaintiff and Defendant entered into a Distribution Agreement for Plaintiff to distribute “Glock Only” pistols to the law enforcement market. This Distribution Agreement is an annual contract that has been renewed every year since 2011. On July 10, 2017, Defendant attempted to unilaterally terminate the Distribution Agreement “effective immediately.” Defendant claimed Plaintiff violated the Distribution Agreement by selling 340 Glock products to the commercial market rather than the law enforcement market.[1]

         Plaintiff's Complaint brings the following claims: (1) violation of the New Jersey Franchise Practices Act (NJFPA) (unlawful termination); (2) violation of the NJFPA (engagement in prohibited practices); (3) breach of contract; (4) breach of the implied covenant of good faith and fair dealing; (5) promissory and equitable estoppel; (6) tortious interference with business relations; (7) tortious interference with contract; (8) breach of fiduciary duty; (9) fraud and negligent misrepresentation; (10) unjust enrichment, (11) violation of the New Jersey Uniform Commercial Code; and (12) violation of the New Jersey Consumer Fraud Act (NJCFA). Defendant filed its Motion to Dismiss on October 4, 2017.

         II.

         This Court has subject matter jurisdiction over this matter pursuant to 28 U.S.C. § 1332. Plaintiff is a New Jersey corporation with its principal place of business in Delaware. Defendant is a Georgia corporation with its principal place of business in Georgia. As Defendant's Notice of Removal pleads an amount in controversy in excess of $75, 000, exclusive of interest and costs, this Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332.

         III.

         When considering a motion to dismiss a complaint for failure to state a claim upon which relief can be granted pursuant to Federal Rule of Civil Procedure 12(b)(6), a court must accept all well-pleaded allegations in the complaint as true and view them in the light most favorable to the plaintiff. Evancho v. Fisher, 423 F.3d 347, 351 (3d Cir. 2005). It is well settled that a pleading is sufficient if it contains “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2).

         “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the ‘grounds' of his ‘entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do . . . .” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in original) (citations omitted) (first citing Conley v. Gibson, 355 U.S. 41, 47 (1957); Sanjuan v. Am. Bd. of Psychiatry & Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1994); and then citing Papasan v. Allain, 478 U.S. 265, 286 (1986)).

To determine the sufficiency of a complaint, a court must take three steps. First, the court must “tak[e] note of the elements a plaintiff must plead to state a claim.” Second, the court should identify allegations that, “because they are no more than conclusions, are not entitled to the assumption of truth.” Third, “whe[n] there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief.”

Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011) (alterations in original) (citations omitted) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 664, 675, 679 (2009)).

         A district court, in weighing a motion to dismiss, asks “not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claim.” Twombly, 550 U.S. at 563 n.8 (quoting Scheuer v. Rhoades, 416 U.S. 232, 236 (1974)); see also Iqbal, 556 U.S. at 684 (“Our decision in Twombly expounded the pleading standard for ‘all civil actions' . . . .”); Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (“Iqbal . . . provides the final nail in the coffin for the ‘no set of facts' standard that applied to federal complaints before Twombly.”). “A motion to dismiss should be granted if the plaintiff is unable to plead ‘enough facts to state a claim to relief that is plausible on its face.'” Malleus, 641 F.3d at 563 (quoting Twombly, 550 U.S. at 570).

         IV.

         The Court first addresses what law it applies in deciding this motion. “A federal district court applies the forum state's choice of law rules to diversity actions.” Ciecka v. Rosen, 908 F.Supp.2d 545, 552 (D.N.J. 2012). Accordingly, the Court will apply New Jersey choice of law rules. “New Jersey choice-of-law rules provide that ‘[o]rdinarily, when parties to a contract have agreed to be governed by the laws of a particular state, New Jersey courts will uphold the contractual choice.'” Collins v. Mary Kay, Inc., 874 F.3d 176, 183-84 (3d Cir. 2017) (quoting Instructional Sys., Inc. v. Comput. Curriculum Corp., 614 A.2d 124, 133 (N.J. 1992)).

Parties' freedom to choose the law applicable to their agreements is not without boundaries in New Jersey law. New Jersey looks to Restatement § 187 to determine under what circumstances a choice-of-law clause will not be respected. Specifically, the Restatement provides that the parties' contractual choice will not govern if: “(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties' choice, or (b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which . . . would be the state of the applicable law in the absence of an effective choice of law by the parties.”

Id. at 184 (quoting Instructional Sys., 614 A.2d at 133).

         The Distribution Agreement provides: “This Agreement and the rights and obligations of the parties hereunder shall be governed and construed in accordance with the internal, substantive laws of the State of Georgia, USA, including its provisions of the Uniform Commercial Code, but without giving effect to its conflicts of laws principles.”

         The parties do not dispute that, if their relationship constitutes a franchise, the NJFPA applies regardless of the Georgia choice of law provision. See, e.g., Colt Indus. v. Fidelco Pump & Compressor Corp., 700 F.Supp. 1330, 1333 (D.N.J. 1987) (“[I]f this Court finds that the relationship between the parties amounts to a franchise as that term is used in the [N]FPA], the choice of law provision contained in the agreements will not abrogate the right of the [parties] to invoke the protections of [the NJFPA].”). The same holds true for Plaintiff's other state statutory claim. Prescription Counter v. AmerisourceBergen Corp., No. 04-5802, 2007 WL 3511301, at *13 (D.N.J. Nov. 14, 2007) (“The importance of the consumer protection policy manifested by the NJCFA has led the courts to apply New Jersey law, even though other choice of law rules pointed elsewhere.”).

         However, the parties disagree as to what law applies to the state common law claims. Plaintiff argues New Jersey law applies; Defendant argues Georgia law applies. The Court finds that, regardless of whether the NJFPA applies, it must apply Georgia law to the state common law claims. Ocean City Express Co. v. Atlas Van Lines, Inc., No. 13-1467, 2013 WL 3873235, at *4 n.4 (D.N.J. July 25, 2013) (“It may seem incongruous to apply New Jersey law and Indiana law in the same action, with New Jersey law governing the NJFPA claim and Indiana law governing the good faith and fair dealing claim. But other courts in this district have applied two states' laws to cases involving NJFPA claims.”); Goldwell of N.J., Inc. v. KPSS, Inc., 622 F.Supp.2d 168, 193-94 (D.N.J. 2009) (“[T]he Court will respect the . . . choice of law provisions stipulating that Maryland law shall govern [the] non-NJFPA claims.”); Stadium Chrysler Jeep, L.L.C. v. DaimlerChrysler Motors Co., LLC, 324 F.Supp.2d 587, 594 n.1 (D.N.J. 2004); Harter Equip., Inc. v. Volvo Constr. Equip. N. Am., Inc., No. 01-4040, 2003 WL 25889139, at *8 (D.N.J. Sept. 24, 2003).

         Plaintiff cites Red Roof Franchising, LLC v. Patel, 877 F.Supp.2d 124 (D.N.J. 2012), aff'd, 564 Fed.Appx. 685 (3d Cir. 2014); King v. GNC Franchising, Inc., No. 04-5125, 2007 WL 1521253 (D.N.J. May 23, 2007); Winer Motors, Inc. v. Jaguar Rover Triumph, Inc., 506 A.2d 817 ( N.J.Super.Ct.App.Div. 1986); and Instructional Systems, 614 A.2d 124 in arguing New Jersey law applies. None of these cases convince the Court that New Jersey law should apply to the state law claims.

         Red Roof Franchising, decided by the undersigned in 2012, was a case dealing with the NJFPA and a Texas choice of law provision. The Court determined that, “[s]ince the franchise [wa]s located in New Jersey, it benefit[ed] from the protections of the New Jersey Franchise Practices Act.” 877 F.Supp.2d at 130. The Court then considered whether the Texas choice of law provision should govern the common law issues - a separate inquiry. Id. at 131. At issue was a breach of contract claim. Id. The Court determined that there was “no true conflict between Texas law and New Jersey law with regard to breach of contract, ” and the Court thus decided to apply New Jersey law, i.e., the law of the forum state, due to the absence of a conflict. The Red Roof Franchising court thus did not decide this issue.

         The Court need not dwell long on Instructional Systems, Winer Motors, or King, which have already been examined as to this issue by the Goldwell court:

In ISI I, . . . the Court was asked to decide whether the application of the NJFPA applied despite the existence of a California choice of law provision (the New Jersey Supreme Court answered affirmatively). ISI I, 130 N.J. at 341. It did not answer the different question of whether an extra-state choice of law provision may apply to non-NJFPA (i.e., common law) claims asserted elsewhere in the litigation. Nor did Winer Motors . . . - relied upon by the courts in both ISI I and King - where the issue presented was whether the NJFPA or a Connecticut analogue applied to a Connecticut franchisee notwithstanding a New Jersey forum selection clause . . . . Again, the sole inquiry was which state's franchise protection statute applied, not whether a choice of law provision otherwise governed existing common law claims.
This Court recognizes that the court in King applied New Jersey law to breach of contract counterclaims brought by a defendant franchisor against New Jersey franchisees despite a Pennsylvania forum selection clause . . . . However, insofar as King relies on ISI I and Winer for the proposition that, despite an alternative forum selection clause, “New Jersey choice of law jurisprudence clearly holds that the law of the state in which the franchise has its principal place of business should apply” inexorably in all respects to all causes of action, this Court must politely part company with that decision.

Goldwell, 622 F.Supp.2d at 194 (citations omitted). The Court agrees with the Goldwell court's interpretation of Instructional Systems, Winer Motors, and King. The Court will apply Georgia law to the non-NJFPA and non-NJCFA claims.

         V.

         A. New Jersey Franchise Practices Act

         Plaintiff argues two violations of the NJFPA: unlawful termination under N.J.S.A. 56:10-5 and engagement in prohibited practices under N.J.S.A. 56:10-7(f). Before reaching the merits of these claims, the Court must first determine whether Plaintiff is entitled to the protections of the NJFPA. “The New Jersey legislature enacted the NJFPA to remedy the disparity in bargaining power between franchisors and franchisees by protecting franchisees against indiscriminate terminations and nonrenewals.” Red Roof Franchising, 877 F.Supp.2d at 137. “The protections of the NJFPA . . . apply only to a ‘franchise, '” as defined by the statute. Ocean City Express Co. v. Atlas Van Lines, Inc., 194 F.Supp.3d 314, 322 (D.N.J. 2016). N.J.S.A. 56:10-3 defines a “franchise” as follows:

a written arrangement for a definite or indefinite period, in which a person grants to another person a license to use a trade name, trade mark, service mark, or related characteristics, and in which there is a community of interest in the marketing of goods or services at wholesale, retail, by lease, agreement, or otherwise.

         “In other words, a franchise under the NJFPA requires the franchisor's grant of a license to the franchisee and a community of interest between the parties in the relevant market.” Id. Further, the NJFPA applies only

to a franchise (1) the performance of which contemplates or requires the franchisee to establish or maintain a place of business within the State of New Jersey, (2) where gross sales of products or services between the franchisor and franchisee covered by such franchise shall have exceeded $35, 000.00 for the 12 months next preceding the institution of suit pursuant to this act, and (3) where more than 20% of the franchisee's gross sales are intended to be or are derived from such franchise.

N.J.S.A. 56:10-4(a).

         In sum, “[a] franchise exists under the NJFPA if: (1) there is a ‘community of interest' between the franchisor and the franchisee; (2) the franchisor granted a ‘license' to the franchisee; and (3) the parties contemplated that the franchisee would maintain a ‘place of business' in New Jersey.” Cooper Distrib. Co. v. Amana Refrigeration, 63 F.3d 262, 268-69 (3d Cir. 1995) (citing N.J.S.A. 56:10-3a, -4a).[2] Determining whether a franchise exists requires not only examination of the agreement between the parties “but also the parties' practices under it.” Cassidy Podell Lynch, Inc. v. Snydergeneral Corp., 944 F.2d 1131, 1138 (3d Cir. 1991). The Court begins with the New Jersey place of business requirement.

         1. Place of Business in New Jersey

         The NJFPA requires that, for a franchise to exist, the performance must “contemplate[] or require[] the franchisee to establish or maintain a place of business within the State of New Jersey.” N.J.S.A. 56:10-4(a)(1). “Place of business” is defined in N.J.S.A. 56:10-3(f) as follows:

[A] fixed geographical location at which the franchisee displays for sale and sells the franchisor's goods or offers for sale and sells the franchisor's services. Place of business shall not mean an office, a warehouse, a place of storage, a residence or a vehicle, except that with respect to persons who do not make a majority of their sales directly to consumers, “place of business” means a fixed geographical location at which the franchisee displays for sale and sells the franchisor's goods or offers for sale and sells the franchisor's services, or an office or a warehouse from which franchisee personnel visit or call upon customers or from which the franchisor's goods are delivered to customers.

         “In other words, the NJFPA requires an actual sales location in New Jersey at which a ‘substantial level' of customer marketing and ‘sales-related [customer] interplay' occurs, not solely a center of distribution.” Ocean City Express, 46 F.Supp.3d at 509 (alteration in original) (quoting Fischer Thompson Beverages, Inc. v. Energy Brands Inc., No. 07-4585, 2007 WL 3349746, at *3 (D.N.J. Nov. 9, 2007)). “In order to survive dismissal, Plaintiff must therefore allege that selling constitutes a ‘major activity' on its premises, ‘involving the interplay of goods on display, the physical presence of the customer[, ]' in addition to actual efforts to sell product(s) to the customer.” Id. (alteration in original) (quoting Liberty Sales Assocs., Inc. v. Dow Corning Corp., 816 F.Supp. 1004, 1009 (D.N.J. 1993)).

         The Court finds Plaintiff has failed to plead in the current complaint that selling constitutes a major activity at the New Jersey place of business. In Plaintiff's opposition brief, it argues:

Here, Lawmen's New Jersey facility is the hub of its marketing and sales-related activities as it relates to Glock products sold to the New Jersey law enforcement market, which is the largest and most profitable law enforcement market for Lawmen under the Distribution Agreement. (Complaint ¶ 1, 92.) Indeed, at Lawmen's New Jersey facility - which also serves as its principal place of business - Lawmen employs its sales and support personnel who display, order, and manage all transactions for Glock products for New Jersey law enforcement agencies under the Distribution Agreement. (Id.) As such, Lawmen's New Jersey facility is the exact type of facility this Court has found to satisfy the “place of business” inquiry.
Second, while Lawmen does not maintain its FFL and, in turn, its Glock pistol inventory at its New Jersey facility, other non-pistol Glock products are kept, offered, and sold from the New Jersey facility to New Jersey law enforcement agencies under the Distribution Agreement. (Id.)

         The problem with this argument is that those facts are not pleaded in the Complaint. Plaintiff relies on paragraphs one and ninety-two of its Complaint in the argument quoted above. These paragraphs simply plead that “Lawmen is a New Jersey corporation and New Jersey licensed distributor of law enforcement products” and that “Lawmen operates its franchise ‘within the State of New Jersey.'” (Compl. ¶¶ 1, 92). In an uncited portion of the Complaint, it relatedly pleads: “Plaintiff Lawmen is a New Jersey corporation with its principal place of business at 7150 Airport Highway, Pennsauken, New Jersey 08109. From this facility, Lawmen orders and manages the pistols it distributes to its customers.” (Compl. ¶ 9).

         On a motion to dismiss, the Court assumes only the veracity of those facts actually pleaded. However, because the facts recited in the brief, if pleaded in good faith, would be sufficient to make out a plausible claim that the New Jersey location is the type of sales facility required by the NJFPA and not merely a distribution site, Plaintiff will be granted leave to replead this aspect of the Complaint. Plaintiff will be granted thirty days to amend its Complaint to assert those facts necessary to make out a plausible claim that it maintained an actual sales location in New Jersey at the time the alleged franchise was terminated.[3] The Court finds granting leave to amend here comports with Federal Rule of Civil Procedure 15(b), whereby a “court should freely give leave when justice so requires.”

         While the Court assumes that, despite the lack of support in Plaintiff's Complaint, Plaintiff has not been disingenuous in its representations to the Court through its briefing, in repleading, Plaintiff is reminded of the requirements of Federal Rule of Civil Procedure 11 - that by filing a pleading with the Court, an attorney is certifying that “the factual contentions have evidentiary support or, if specifically so identified, will likely have evidentiary support after a reasonable opportunity for further investigation or discovery.”

         2. Community of Interest Requirement

         The Court finds Plaintiff has set forth a plausible claim that the parties share a community of interest such that the NJFPA applies. “[A] community of interest exists when the terms of the agreement between the parties or the nature of the franchise business requires the licensee, in the interest of the licensed business's success, to make a substantial investment in goods or skills that will be of minimal utility outside the franchise.” Cassidy Podell Lynch, 944 F.2d at 1143. Thus, “in order to find a ‘community of interest,' two requirements must be met: (1) the distributor's investments must have been ‘substantially franchise-specific,' and (2) the distributor must have been required to make these investments by the parties' agreement or the nature of the business.” Cooper Distrib. Co., 63 F.3d at 269 (citation omitted) (first citing Instructional Sys., 614 A.2d at 141; and then citing N.J.S.A. 56:10-3a). “Franchise-specific investments are usually tangible capital investments, such as a building designed to meet the style of the franchise, special equipment useful only to produce the franchise product, and franchise signs.” Beilowitz v. GMC, 233 F.Supp.2d 631, 640 (D.N.J. 2002) (citing Instructional Sys., 614 A.2d at 141). Further, “[a] community of interest may be demonstrated by the economic dependence of the alleged franchisee on the alleged franchisor, as evidenced by a high percentage of the franchisee's sales of the franchisor's products.” Id. at 641.

         Plaintiff highlights the following provisions in the Distribution Agreement ...


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