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Carhartt, Inc. v. Innovative Textiles, Inc.

United States District Court, E.D. Michigan, Southern Division

June 11, 2018

Carhartt, Inc., Plaintiff,
v.
Innovative Textiles, Inc., Defendant/Third-Party Plaintiff,
v.
Gentry Mills, Inc., Third-Party Defendant.

          R. Steven Whalen Mag. Judge.

          OPINION AND ORDER GRANTING GENTRY MILLS, INC.'S MOTION TO DISMISS THE THIRD-PARTY COMPLAINT [18]

          JUDITH E. LEVY UNITED STATES DISTRICT JUDGE.

         Judith E. Levy United States District Judge Mag. Judge R. Steven Whalen

         I. Background

         After Carhartt, Inc. found out that its fire resistant garments containing Innovative Textiles, Inc.'s (“ITI”) fire resistant fabric were not actually fire resistant, Carhartt sued ITI. Carhartt brings claims for breach of contract, negligence, and other theories against ITI, alleging that ITI's decision to change the fibers it incorporated into its fire resistant fabric from an industry standard fiber to a new, untested competitor caused the defect in Carhartt's products. ITI then filed a third-party complaint against Gentry Mills, Inc. (“GMI”), a subcontractor involved in ITI's fabric production business.

         ITI alleges that GMI is responsible for the defects in the products that it sold to Carhartt because “[a]ll of the fabric Carhartt contends was defective was dyed, treated, finished, and tested by GMI before it was ultimately supplied to Carhartt.” (Dkt. 8 at 3.) ITI brings five counts against GMI: breach of contract (Count I), breach of express warranty (Count II), breach of implied warranty (Count III), common law indemnity (Count IV), and implied contractual indemnity (Count V).

         GMI now moves to dismiss the third-party complaint. This matter was fully briefed by the parties, and, pursuant to Local Rule 7.1 the Court determines that no hearing is necessary.

         II. Standard of Review

         When deciding a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the Court must “construe the complaint in the light most favorable to the plaintiff and accept all allegations as true.” Keys v. Humana, Inc., 684 F.3d 605, 608 (6th Cir. 2012). “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A plausible claim need not contain “detailed factual allegations, ” but it must contain more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

         III. Choice of Law

         ITI argues that North Carolina law should apply to the allegations in its third-party complaint, and, although GMI did not affirmatively raise this issue, it appears not to contest it.

         When a Michigan federal court exercises jurisdiction based on the diversity of the parties, the “conflict of laws rules to be applied by the federal court in [Michigan] must conform to those prevailing in [Michigan's] state courts.” See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). In actions based in contract, Michigan courts apply §§ 187 and 188 of the Second Restatement of Conflict of Laws. Chrysler Corp. v. Skyline Indus. Servs., Inc., 448 Mich. 113, 124 (1995). Where the parties have not agreed upon the applicable law, § 188 dictates that courts apply “the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties.” Restatement (Second) of Conflict of Laws § 188(1) (1971); see also Chrysler Corp., 448 Mich. at 128. The state with the most significant relationship to the transaction and parties is determined by looking to “(a) the place of contracting, (b) the place of negotiation of the contract, (c) the place of performance, (d) the location of the subject matter of the contract, and (e) the domicil, residence, nationality, place of incorporation and place of business of the parties.” Restatement § 188(2).

         Though this action is in a Michigan federal court, North Carolina has the most significant relationship to the transaction and the parties.[1]Both parties are North Carolina corporations, and they each maintain their principal place of business there. (Dkt. 8 at 1-2.) Though the third-party complaint does not contain detailed factual allegations about the interactions between the parties, it is reasonable to assume that because they are both headquartered in North Carolina, “the place of contracting, place of negotiation of the contract, place of performance, and location of the subject matter of the contract” are all North Carolina. See Restatement § 188(2)(a)-(d) (internal formatting altered).

         In addition, none of the § 188 factors indicate that Michigan has an interest in applying its law to this case. This action is in Michigan court by operation of a choice of forum clause in the agreement between Carhartt and ITI. (Dkt. 1-2 at 15.) That clause has no bearing on the relationship between ITI and GMI, and there is nothing else about the parties' relationship that indicates they would reasonably expect to litigate pursuant to Michigan law.

         For these reasons, North Carolina law applies to the allegations in the third-party complaint.

         IV. Analysis

         a. Breach of Contract

         The first count of ITI's complaint is for breach of contract. It alleges that “GMI breached its contractual obligations to ITI to provide goods and services in accordance with ITI's purchase orders and industry standards.” (Dkt. 8 at 3.)

         Under North Carolina law, a party alleging breach of contract must demonstrate “(1) the existence of a valid contract and (2) breach of the terms of the contract.” Martinez v. Univ. of N. Carolina, 223 N.C.App. 428, 432 (2012) (quoting Long v. Long, 160 N.C.App. 664, 668 (2003)).

         ITI fails to allege sufficient facts to sustain its breach of contract claim. First and foremost, ITI does not allege the existence of a contract. The third-party complaint's only mention of a contract between ITI and GMI is the language quoted above, alleging that “GMI breached its contractual obligations to ITI.” (Dkt. 8 at 3.) There is no explanation, for example, of when the contract was formed, who the parties are, or whether it was oral or written. Absent such information, the third-party complaint contains only “labels or ...


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