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PNY Technologies, Inc. v. Netac Technology Co., Ltd.

United States District Court, D. New Jersey

August 1, 2018

PNY TECHNOLOGIES, INC. Plaintiff,
v.
NETAC TECHNOLOGY CO., LTD., Defendant.

          OPINION & ORDER

          Stanley R. Chesler, U.S.D.J

         This matter has come before the Court on the motion to dismiss the Amended Complaint for failure to state a valid claim for relief, pursuant to Federal Rule of Civil Procedure 12(b), by Defendant Netac Technology Co., Ltd. (“Netac”). Plaintiff PNY Technologies, Inc. (“PNY”) has opposed the motion. For the reasons that follow, the motion will be granted in part and denied in part.

         The Amended Complaint asserts nine counts: 1) fraud in the inducement; 2) declaratory judgment of mutual mistake; 3) declaratory judgment of mutual mistake; 4) declaratory judgment of unilateral mistake; 5) declaratory judgment of frustration of purpose; 6) declaratory judgment of patent invalidity of the ‘024 patent; 7) declaratory judgment that the ‘024 patent is unenforceable due to inequitable conduct; 8) declaratory judgment of patent invalidity of the ‘585 patent; and 9) declaratory judgment that the ‘585 patent is unenforceable due to inequitable conduct. Netac now moves to dismiss all claims in the Amended Complaint.

         As to Count One, for fraud in the inducement, Netac argues that the Amended Complaint fails to state sufficient facts to meet the pleading requirements of Twombly and Federal Rule of Civil Procedure 9(b). The Amended Complaint alleges that, during the 2008 mediation, Netac represented to PNY that the ‘672 patent was “bulletproof, ” and did not inform PNY of “any pending or threatened patent challenges.” (Am. Compl. ¶¶ 137-38.) The Amended Complaint alleges that Netac knew that this representation and omission were false and misleading, and that they induced PNY to sign the settlement agreement. (Am. Compl. ¶¶ 139, 141.)

         This Court agrees with Netac that the Amended Complaint fails to state sufficient facts to raise the right to relief for fraud in the inducement above the speculative level. The only facts alleged here are that Netac represented that the ‘672 patent was “bulletproof” during mediation and that the parties executed a settlement agreement. These factual allegations do not suffice to make plausible a claim for fraud in the inducement. New Jersey law requires the pleading of five elements to make out a claim for fraud:

The five elements of common-law fraud are: (1) a material misrepresentation of a presently existing or past fact; (2) knowledge or belief by the defendant of its falsity; (3) an intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and (5) resulting damages.

Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610, 691 A.2d 350, 367 (1997). Count One fails from the first element, which requires a misrepresentation of “a presently existing or past fact.” Plaintiff's grievance with the statement that the ‘672 patent was bulletproof concerns the future of that patent, not its present or past at the time the statement was made. The Amended Complaint states: “had PNY known at the time of the 2008 Mediation that the ‘672 Patent was in serious jeopardy of invalidation, PNY would not have signed the Settlement Agreement.” (Am. Compl. ¶ 140.) The Amended Complaint pleads no facts that make plausible the assertion that, during the 2008 mediation, Netac knew that the ‘672 Patent was in serious jeopardy of invalidation. Rather, the Amended Complaint alleges that the process leading to the eventual invalidation of that patent began almost five months after the mediation, on July 9, 2008, when non-party SanDisk initiated an inter partes reexamination with the USPTO. (Am. Compl. ¶ 44.) There is no factual support for the inference that these later-arising facts were known at the time of the mediation. The Amended Complaint fails to allege an actionable misrepresentation or omission.

         The Amended Complaint does not plead sufficient facts to make plausible a claim for fraud in the inducement of the settlement agreement. Moreover, this Court finds no basis to believe that amendment could cure this defect; Count One will be dismissed with prejudice.

         As to Counts Two and Three, for declaratory judgment of mutual mistake, Netac makes a number of arguments. First, Netac argues that Count Two is moot because there can be no mistake because of a particular decision by Judge Bassler as arbitrator. This argument relies on factual assertions extrinsic to the pleadings and cannot be considered on a Rule 12(b)(6) motion; at this juncture, all well-pleaded factual allegations in the complaint are assumed to be true. Phillips v. Cty. of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008).

         Next, Netac advances an unclear argument that Counts Two and Three had to be arbitrated. This appears to rely on the assertion that a factual allegation made in paragraph 109 of the Amended Complaint is incorrect. Again, at this juncture, this Court assumes the allegations in the Amended Complaint to be true. Arguments that the pleadings are false cannot succeed on a motion to dismiss.

         In a footnote, Netac argues that Counts Two through Four are barred by the six-year statute of limitations for breach of contract actions in effect in both New Jersey and Hawaii. In opposition, PNY argues that these claims are equitable in nature and are not subject to the limitations applicable to actions at law. The dispute over this issue has not been briefed sufficiently for the Court to decide it.[1] Neither party has persuaded the Court that these claims are clearly of a legal or equitable nature, and the relevance of the statutes of limitation cannot be determined on this record.

         Netac next argues that Counts Two and Three, for declaratory judgment of mutual mistake, fail to allege any mutual mistake. Even in the absence of briefing on choice of law, this Court can decide this issue: Count Two does not allege facts which make plausible a mutual mistake under either New Jersey or Hawaii law.[2] The key to this conclusion lies in this allegation:

150. Upon information and believe, both PNY and Defendant executed the Settlement Agreement with the understanding that the definition of “flash drives” included only PCBA products, as these were the only products at issue in the Texas Action and the only relevant products that PNY was selling as of February 11, 2008.

         (Am. Compl. ¶ 150.) The Amended Complaint thus alleges that the true state of affairs is that PNY and Netac agreed on the definition of flash drives at the time the Settlement Agreement was executed. It also alleges that, subsequently, Netac has alleged ...


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