World Class Wholesale, LLC v. Star Industries, Inc. ( 2018 )

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
WORLD CLASS WHOLESALE, LLC, )
a DelaWare Limited Liability Company, )
)
Plaintiff, ) C.A. No. Nl 7C-05-093 l\/[MJ
)
V. )
)
STAR INDUSTRIES, INC., )
a New York Corporation, )
)
Defendant. )
Subrnitted: March 7, 2018
Decided: May 22, 2018
OPINION
John G. Harris, Esq. (Argued), Sean A. Meluney, Esq., Berger Harris LLP,
Attorneys for World Class Wholesale, LLC
Adam Balick, Esq. (Argued), Balick & Balick, LLC, Attorney for Defendant Star
Industries, Inc.
JOHNSTON, J.
FACTUAL AND PR()CEI)URAL CONTEXT
This case arises out of an alleged alcohol distribution agreement Plaintiff
World Class Wholesale, LLC (“WCW”) is licensed as an alcohol Wholesaler in
DelaWare. Defendant Star Industries, Inc. (“Star”) is an alcohol supplier
headquartered and incorporated in New York. WCW claims that it entered into an
oral contract With Star in Which WCW agreed to be the exclusive distributor of Star’s
products in DelaWare for an indefinite period of time. When Star voluntarily
surrendered its DelaWare out-of-state liquor supplier’s license and ceased doing
business in DelaWare, WCW initiated an action against Star before the Office of the
DelaWare Alcoholic Beverage Control Commissioner.
Before the Commissioner, WCW argued that the surrender of the license
constituted an involuntary termination of distribution rights Without good cause
pursuant to Rule 901 of Title 4 of the DelaWare Administrative Code. WCW sought
$160,000 in compensation The Commissioner held that Rule 901 did not apply,
reasoning that the purpose of Rule 901 “is to compensate a Wholesaler for building
a brand Where another Wholesaler in the state ultimately reaps the rewards of such
building and labor . . . . This present matter is not a scenario Where Star’s products
are coming into DelaWare though a different Wholesaler While at the labor of
WCW.”l
ln spite of the Commissioner’s ruling, Which WCW does not appeal here,
WCW seeks damages as if Rule 901 did apply, referencing alleged violations of Rule
901 in its breach of contract claim in its complaint ln addition to the breach of
contract claim, WCW also brings claims under the theories of breach of the implied
covenant of good faith and fair dealing, promissory estoppel, and unjust enrichment
In response, Star has filed two motions to dismiss Star seeks dismissal of the
breach of contract, breach of the implied covenant of good faith and fair dealing, and
1 Star lndustries, lnc.’s Mot. to Dismiss Pursuant to Superior Court Rule 12(b)(1), EX. B, at 5.
2
the unjust enrichment claims.
MOTION TO DISMISS STANDARD
In a Rule 12(b)(6) motion to dismiss, the Court must determine Whether the
claimant “may recover under any reasonably conceivable set of circumstances
susceptible of proof.”2 The Court must accept as true all well-pleaded allegations3
Every reasonable factual inference Will be drawn in the non-moving party’s favor.4
If the claimant may recover under that standard of review, the Court must deny the
motion to dismiss.5
ANALYSIS
Motion to Dismiss the Breach of Contract and
Breach of the lmplied Covenant of Good Faith and Fair Dealing Claims
Star contends these counts should be dismissed because the alleged
underlying oral promise violates the Statute of Frauds. The DelaWare Statute of
Frauds prohibits an action from being brought based on an “agreement that is not to
be performed Within the space of l year from the making thereof . . . unless the
contract is reduced to Writing . . . signed by the party to be charged therewith.”6 “It
2 Spence v. Funk, 396 A.zd 967, 968 (Del. 1978).
3 Id.
4 Wilmington Sav. Fund. Soc ’v, F.S.B. v. Anderson, 2009 WL 597268, at *2 (Del. Super.) (citing
Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005)).
5 Spence, 396 A.2d at 968.
6 6 Del. C. § 2714. The Court notes that the February 28, 2014 agreement WCW cited in its
opposition brief has no effect on this Statute of Frauds analysis, because Star Was not a party to
that Written agreement
has been the law in Delaware for many years that the Statute of Frauds does not
apply to a contract which may, by any possibility, be performed within a year.”7
WCW does not argue that the term of the contract was greater than one year.
lnstead, it admits that the Agreement was of an “indefinite term” expected to last
“for the foreseeable future.”8 WCW argues that because the contract could have
been terminated for “good cause” at any point, including within one year, the
agreement could have been performed within one year, rendering the Statute of
Frauds inapplicable9
ln response, Star relies on a principle enunciated in Milton Abeles, Inc. v.
Farmers Prz`a’e, Inc.,10 a case decided in the Eastern District of New York: “lf the
only way to complete a contract within one year is to breach the contract, the contract
does not satisfy the Statute of Frauds.”ll While New York and Delaware apply the
statute of frauds “sirnilarly,”lz the jurisdictions appear to differ in their treatment of
oral contracts with an indefinite term.
7 Haveg Corp. v. Guyer, 211 A.2d 910, 912 (Del. 1965) (citing Devalinger v. Maxwell, 54 A.
684, 686 (1903)).
8 Am. Compl. 11143, 85.
9 As this is a motion to dismiss, the Court must accept as true WCW’s allegation in its amended
complaint that Star breached its contract with WCW by “[t]erminating the contract without good
cause.” Am. Compl. 1[ 112 (ii).
10 2007 WL 2028069, at *1 (E.D. N.Y.).
ll Ia'. at *3 (citing Alcm Skop, Inc. v. Benjamin Moore, Inc., 909 F.2d 59, 65 (2d Cir.1990)).
12 Dweck v. Nasser, 2010 WL 972780, at *1 (Del. Ch.) (noting that a choice of law between New
York and Delaware in a statute of frauds case “is without consequence, as both jurisdictions apply
the rule similarly.”).
Contrary to Milton, the Court of Chancery in Brana’ner v. DelaWare State
Housing Auth0rily,l3 explicitly held that the possibility of the termination of an
indefinite employee contract for good cause is a scenario in which “the contract is
completed within one year. Thus, the Statute of Frauds does not apply.”14 Though
the oral agreement at issue in this case is not an employment contract, the Court sees
no reason why the logic in Brana’ner_good cause termination is a way an indefinite
contract may be performed within one year_-would be inapplicable to a distribution
agreement Though New York law on the statute of frauds may generally be similar
to Delaware, the Court is bound to follow Delaware law when the two conflict
Therefore, viewing the facts in the light most favorable to the non-moving
party, WCW has alleged that the contract contained a “good cause” termination
clause. Under Delaware law, such a clause allows for a contract with an indefinite
term to be performed within one year. Thus, the statute of frauds does not prevent
enforcement of the agreement The Court hereby denies Star’s motion to dismiss
the breach of contract and breach of the implied covenant of good faith and fair
dealing claims.
Motion to Dismiss the Unjust Enrichment Claim
“Unjust enrichment is ‘the unjust retention of a benefit to the loss of another,
13 605 A.2d l (D€l. Ch. l99l).
14 Ia'. at 2.
or the retention of money or property of another against the fundamental principles
of justice or equity and good conscience.’ The elements of unjust enrichment are:
(l) an enrichment, (2) an impoverishment, (3) a relation between the enrichment and
impoverishment, (4) the absence of justification, and (5) the absence of a remedy
provided by law.”15
WCW alleges unjust enrichment based on its allegation that Star failed to
fairly compensate WCW for the “servicing, maintenance, marketing, and
promotional services” WCW provided Star.16
The Court finds that Star no longer conducts business in Delaware. Therefore,
it cannot be said that Star is retaining the benefit of WCW’s services.17
However, WCW signed a $50,000 note payable to Star’s former Delaware
distributor. WCW contends that Star was obligated to compensate the former
distributor $50,000 upon termination WCW’s note relieved Star of that obligation.
WCW alleged at oral argument that at least a portion of the note remains outstanding
Viewing the facts in the light most favorable to the non-moving party, WCW
has established a prima facie case for unjust enrichment with regard to the $50,000
15 Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010) (quoting Fleer Corp. v. Topps Chewing
Gw’n, IHC., 539 A.2d 1060, 1062 (D€l. 1988)).
16 Am. Compl.11 138.
17 WCW made a bare-bones allegation that these services provide some benefit to Star in New
York, where it continues to operate. On its face, this allegation does not appear plausible and does
not meet even the notice pleading requirement However, if evidence at trial demonstrates that the
services provide some value to Star in New York, damages may be added at that time.
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payment allegedly made at Star’s request and on Star’s behalf. The Court finds that
no other allegations are adequately pled for a claim of unjust enrichment Therefore,
the Court hereby grants in part and denies in part Star’s motion to dismiss the unjust
enrichment claim.
CONCLUSION
WCW alleged that the oral contract for an indefinite term between the parties
contained a termination for good cause provision. Such a provision provided a
possible way for the contract to be performed in one year. Under Delaware law, the
statute of frauds is thus rendered inapplicable. Star’s motion to dismiss the breach
of contract and breach of the implied covenant of good faith and fair dealing claims
is hereby DENIED.
WCW’s claims that its Delaware services provide Star a benefit when Star no
longer does business in Delaware are without merit WCW has sufficiently pled
unjust enrichment as to the alleged $50,000 payment Star’s motion to dismiss the
unjust enrichment claim is hereby DENIED IN PART AND GRANTED IN
PART.
IT IS SO ORDERED.
Th onoi'alealy M. Johnston