Dorset Industries, Inc. v. Unified Grocers, Inc.
893 F. Supp. 2d 395
E.D.N.Y2012Background
- Dorset and Unified engaged in a checkout-program business model involving exclusive design, manufacture, and marketing of display units.
- Two 2006 contracts (New Installation Agreement and Extension Agreement) modified the program terms and revenue sharing.
- Dorset claimed exclusive manufacturing rights and Unified’s obligation to solicit grocers; Unified disputed and sought to terminate.
- Disputes arose over how to enroll grocers (New Installation vs Extension) and revenue sharing after 3-year terms.
- Unified allegedly terminated the agreements in 2011; Dorset alleged misappropriation of confidential information to compete.
- Dorset sued in state court; case removed to federal court on diversity grounds; defendant moved to dismiss under Rule 12(b)(6).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether February Notice validly terminated the agreements | Dorset alleges February email failed writing requirements, thus ineffective termination. | Unified contends February notice sufficed or termination permitted by other terms. | February notice plausibly ineffective; denial of partial dismissal sustained. |
| Whether October Notice validly terminated New Installation Agreement | Even if defaulted, October notice could not terminate due to early-termination provisions. | October notice invoked post-third anniversary termination under paragraph 2; valid. | October notice insufficient to terminate as to extension; extension remains in effect. |
| Whether implied covenant of good faith and fair dealing exists | Dorset pleads reasonable efforts obligation and prohibition on competing program. | Implied duties cannot contradict express terms; merger clause controls. | Implied covenant plausibly alleged; not precluded by merger clause; some claims dismissed as duplicative. |
| Whether breach of confidentiality/non-disclosure was pled | Defendant misused Dorset confidential information to create a competing program. | Plaintiff failed to identify confidential information or misappropriation with specificity. | Sufficient pleading of confidential information/trade secrets; misappropriation claim survives. |
| Whether unfair competition and usurpation claims survive | Unfair competition alleged independent tort; usurpation may apply to co-venturers. | Corporate-opportunity and fiduciary-duty theories do not fit the facts; claims duplicative or inapt. | Unfair competition dismissed as duplicative; usurpation dismissed; fiduciary-duty theory deemed futile to amend. |
Key Cases Cited
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (threadbare allegations insufficient for plausibility)
- Harris v. Mills, 572 F.3d 66 (2d Cir. 2009) (context-specific plausibility inquiry after Twombly and Iqbal)
- Carvel Corp. v. Diversified Mgmt. Group, Inc., 930 F.2d 228 (2d Cir. 1991) (implied covenant context and contract interpretation)
- Cross & Cross Props., Ltd. v. Everett Allied Co., 886 F.2d 497 (2d Cir. 1989) (discretionary duties within contracts and implied obligations)
- Mfrs. Hanover Trust Co. v. Yanakas, 7 F.3d 310 (2d Cir. 1993) (parol evidence and merger clause expectations)
- Amusement Indus., Inc. v. Stern, 693 F. Supp. 2d 301 (S.D.N.Y. 2010) (declaratory judgments duplicative of breach remedies)
- Le Bel v. Donovan, 96 A.D.3d 415 (1st Dep’t 2012) (fiduciary duties among partners; disclaimer impact)
- Seippel v. Jenkens & Gilchrist, P.C., 341 F. Supp. 2d 363 (S.D.N.Y. 2004) (fiduciary and misappropriation pleading standards)
- BNP Paribas Mortg. Corp. v. Bank of Am., N.A., 866 F. Supp. 2d 257 (S.D.N.Y. 2012) (contractual disclaimers of fiduciary relations)