United States District Court, E.D. Michigan, Southern Division
LACKS ENTERPRISES, INC. and HOME PRODUCTS, LLC, Plaintiffs,
HD SUPPLY, INC. and HOME DEPOT U.S.A., INC., Defendants.
ORDER GRANTING IN PART AND DENYING IN PART
DEFENDANTS' MOTION TO DISMISS [DKT. NO. 5]
Page Hood Chief Judge.
Lacks Enterprises, Inc. and Lacks Home Products, LLC
(collectively, “Plaintiff”) have filed suit
against Defendants HD Supply, Inc. and Home Depot U.S.A.,
Inc. (collectively, “Defendant”). This case
arises out of a Settlement Agreement between Plaintiff and HD
Supply, Inc. that governs the resolution of a patent
infringement suit previously brought by Plaintiff against HD
Supply, Inc. in this Court. See Case No. 12-14472.
On March 24, 2016, Defendant filed a Motion to Dismiss
Plaintiff's First Amended Complaint (“, or in the
Alternative, Motion for Judgment on the Pleadings. (Doc. No.
5). Defendant's Motion has been fully
briefed.The Court, having concluded that the
decision process would not be significantly aided by oral
argument, previously ordered that the motion be resolved on
the motion and briefs submitted by the parties. E.D. Mich.
L.R. 7.1(f)(2). [Dkt. No. 15] The Court grants in part and
denies in part Defendant's Motion.
to the Settlement Agreement, Plaintiff granted HD Supply
(through a subsidiary, Crown Bolt) a license to sell
“Faux Garage Door Windows” (this is a defined
term in the Settlement Agreement and the FAC). In exchange,
HD Supply agreed to pay Plaintiff royalties according to the
terms of the Settlement Agreement. In the event of any
payment dispute, the Settlement Agreement allows Plaintiff to
have an independent certified public accountant audit HD
Supply's records. Article 4.5 of the Settlement Agreement
provides, in relevant part:
The Lacks Companies may hire an independent certified public
accountant (hereinafter “CPA”) to inspect or
audit all of the HD Supply Companies' records pertaining
to the manufacture, sale and return or repurchase of Faux
Garage Door Windows for purposes of verifying the HD Supply
Companies' compliance with the terms of this Agreement. .
. . The Lacks Companies shall give the HD Supply Companies
written notice of its election to inspect and audit its
compliance with this Agreement no less than fourteen (14)
days prior to the proposed date of review of the HD Supply
Companies' records by the CPA. . . . In the event of the
identified deficiency, the HD Supply Companies shall have the
opportunity to cure said deficiency and a single event of
deficiency if timely cured shall not be deemed a material
breach of this Agreement for the purpose of termination under
Settlement Agreement includes a provision to address
Plaintiff's perceived quality control concerns about HD
Supply's products, and it governs products manufactured
after January 1, 2014. Article 9.2 of the Settlement
The Parties agree to work together to seek a solution for the
Quality Concerns for future manufacture and production runs
of the Faux Garage Door Windows occurring after the Effective
Date that does not add to the cost of The HD Supply
Companies' Faux Garage Door Windows
(“Solution”). If the Parties identify a Solution,
The HD Supply Companies agree to implement such Solution.
Settlement Agreement also contains a merger clause that
This Agreement constitutes the entire agreement and
understanding among the Parties with respect to the matters
contained herein, and there are no prior oral or written
promises, representations, conditions, provisions, or terms
related thereto other than those set forth in this Agreement.
10.1 (the “Merger Clause”). After the parties
executed the Settlement Agreement, Home Depot U.S.A., Inc.
acquired substantially all of the assets of HD Supply's
Crown Bolt subsidiary, along with the license Plaintiff
granted HD Supply.
original complaint in this suit alleged that Defendant: (a)
failed to pay required royalties in breach of the Settlement
Agreement; and (b) had defrauded Plaintiff by providing false
sales reports to underpay the royalties due on HD Supply
products. Defendant filed an answer to the original
complaint. On February 12, 2016, Plaintiff filed a First
Amended Complaint (“FAC”), and it includes six
counts: (1) Count I - Breach of Settlement Agreement; (2)
Count II - Fraudulent Misrepresentation; (3) Count III -
Declaratory Relief; (4) Count IV - Patent Infringement; (5)
Count V - Unfair Competition in Violation of the Lanham Act,
15 U.S.C. § 1125(a); and (6) Count VI - Unfair
Competition in Violation of Michigan Common Law. On March 10,
2016, this case was transferred to the Eastern District of
Michigan from the Western District of Michigan.
APPLICABLE LAW & ANALYSIS
Standard of Review
12(b)(6) motion to dismiss tests the legal sufficiency of the
plaintiff's complaint. Accepting all factual allegations
as true, the court will review the complaint in the light
most favorable to the plaintiff. Eidson v. Tennessee
Dep't of Children's Servs., 510 F.3d 631, 634
(6th Cir. 2007). As a general rule, to survive a motion to
dismiss, the complaint must state sufficient “facts to
state a claim to relief that is plausible on its face.”
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007). The complaint must demonstrate more than a sheer
possibility that the defendant's conduct was unlawful.
Id. at 556. Claims comprised of “labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Id. at 555.
Rather, “[a] claim has facial plausibility when the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009).
asserts that Plaintiff's fraud claims should be
dismissed: (a) for failure to plead with particularity, as
required under Federal Rule of Civil Procedure 9(b); and (b)
pursuant to the Merger Clause. Defendant first contends that
Plaintiff fails to satisfy the pleading standards of Rule
9(b) because Plaintiff did not allege the time, place and
contents of the misrepresentation(s) upon which it relies -
or who made the misrepresentations. See, e.g., Republic
Bank & Tr. Co. v. Bear Stearns & Co., 683 F.3d
239, 253 (6th Cir. 2012) (holding that to comply with Rule
9(b), “the plaintiff must: (1) point to a particular
allegedly fraudulent statement; (2) identify who made the
statement; (3) plead when and where the statement was made;
and (4) explain what made the statement fraudulent”).
argument is based on four paragraphs of the FAC it
identifies. See Doc. No. 5, PgID 176 at n. 11 and
12. Defendant argues that Plaintiff's allegations do not
identify any particular fraudulent statement(s) and there is
not identification of the individual(s) (or even entity(ies)
who made the alleged representations. Citing Anderson v.
Pine S. Capital, LLC, 177 F.Supp.2d 591, 596-97 (W.D.
Ky. 2001) (“When the complaint involves multiple