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No Spill, Inc. v. Scepter Canada, Inc.

United States District Court, D. Kansas

December 16, 2019

NO SPILL, INC., Plaintiff,



         Plaintiff No. Spill, Inc. brings this action against Defendants Scepter Canada, Inc. and Scepter Manufacturing, LLC, alleging claims for patent infringement, breach of contract, and trade dress infringement under the Lanham Act and Kansas law. Before the Court is Scepter Manufacturing's Motion to Dismiss for Failure to State a Claim (Doc. 51), to which Defendant Scepter Canada, Inc. joins.[1] The motion is fully briefed and the Court is prepared to rule. As described more fully below, the Court grants in part and denies in part Defendant's motion to dismiss. The motion is granted as to the breach of contract claims alleged in Counts III and IV insofar as they seek consequential damages; the motion is otherwise denied.

         I. Legal Standard

         To survive a motion to dismiss brought under Fed.R.Civ.P. 12(b)(6), a complaint must contain factual allegations that, assumed to be true, “raise a right to relief above the speculative level” and must include “enough facts to state a claim for relief that is plausible on its face.”[2]“[M]ere ‘labels and conclusions,' and ‘a formulaic recitation of the elements of a cause of action' will not suffice; a plaintiff must offer specific factual allegations to support each claim.”[3] The court must accept the nonmoving party's factual allegations as true and may not dismiss on the ground that it appears unlikely the allegations can be proven.[4]

         The Supreme Court has explained the analysis as a two-step process. For purposes of a motion to dismiss, the court “must take all the factual allegations in the complaint as true, [but is] ‘not bound to accept as true a legal conclusion couched as a factual allegation.'”[5] Thus, the court must first determine if the allegations are factual and entitled to an assumption of truth, or merely legal conclusions that are not entitled to an assumption of truth.[6] Second, the court must determine whether the factual allegations, when assumed true, “plausibly give rise to an entitlement to relief.”[7] “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.”[8]

         II. Factual Allegations

         The following facts are alleged in the Second Amended Complaint (“SAC”) and contained in the attachments thereto.[9] The Court assumes the alleged facts to be true for purposes of deciding this motion.

         Plaintiff No. Spill and Defendants Scepter Canada, Inc. and Scepter Manufacturing, LLC, manufacture, market, and sell portable plastic fuel containers to consumers in the United States. Plaintiff and Defendant Scepter Manufacturing have a contractual relationship dating back approximately six years.[10] In 2013, the same year Defendant began manufacturing products at its facility in Miami, Oklahoma, Defendant recognized it had excess capacity and idle machines that could be used to increase revenue if put to use. Defendant thus sought a business arrangement with Plaintiff in which Defendant would manufacture gasoline cans for Plaintiff. In order to convince Plaintiff of the viability and likely success of this arrangement, Defendant assured Plaintiff that even though it was a competitor, Plaintiff and its products would be Defendant's top priority at the Oklahoma facility. Although Defendant manufactured competing gasoline cans, it told Plaintiff that it aspired to be Plaintiff's “Vendor of the Year.”[11]

         The Parties' Contractual Relationship

         On September 6, 2013, Plaintiff and Defendant entered into a Supply Agreement.[12]Defendant agreed to custom mold, test, and package Plaintiff's five-gallon fuel container body and sell it to Plaintiff under the terms outlined in the agreement. The Supply Agreement included specific commitments from Defendant as to the amount of Plaintiff's products Defendant would have available at all times. Specifically, Defendant would “stock approximately eight (8) to ten (10) truck-loads” of No. Spill Product . . . . This stock will be used to fill new purchase orders and then replenished as used (FIFO).”[13]

         Regarding “Order Procedure, ” paragraph 5 of the Supply Agreement provides:

Buyer shall issue purchase orders for Product based on full truck loads. Each “Order” shall provide the type and quantity of Products required, the delivery destination and the delivery date. Supplier must accept or reject an Order within one (1) business day of receipt. No. order will be deemed accepted unless Supplier confirms its acceptance. . . .[14]

         Defendant agreed it “understands and acknowledges that time is of the essence with regard to the delivery of the Products under this Agreement.”[15] Plaintiff submitted regular, consistent purchase orders to Defendant by email, as Defendant requested. If Defendant did not have the required truckloads of stock available, Plaintiff would be unable to complete its sales of gasoline cans to dealers and third parties.

         Paragraph 9 of the Supply Agreement states “[u]pon expiration of the Term or other termination of” the Supply Agreement, No. Spill “shall have the option, but not the obligation, to purchase the molding machine and ancillary equipment used in the production of the Products” under terms set forth in Exhibit D to the Supply Agreement.[16] Exhibit D to the Supply Agreement identifies a Bekum blow molding machine by serial number, with described ancillary equipment, with a specified “Initial Value.” Exhibit D states:

At the end of the Term of this Agreement, Buyer shall have the option to purchase the above equipment at a value calculated by reducing the Initial Value by 5% for each full year that the Agreement had been in effect; this reduction not to exceed 50% of the Initial Value.[17]

         Paragraph 10(b) of the Supply Agreement states that Defendant “warrants and represents that . . . (iii) the Products are of merchantable quality and free from defects in material and workmanship, ” and “(iv) the Products conform in all respects” to the Supply Agreement and No Spill's specification.[18]

         Paragraph 13 of the Supply Agreement contains a limitation of liability provision.[19]

         On or about February 9, 2016, the parties entered into the First Amendment to Supply Agreement, the purpose of which was to increase the volume of Plaintiff's product that Scepter agreed to provide. The First Amendment increased Defendant's inventory obligation from ten to eleven truckloads. Thereafter the parties mutually agreed that in order to ensure it could be better equipped to fulfill Plaintiff's order volume, Defendant would increase the quantity of truckloads it was required to have on hand to fifteen. Plaintiff paid Defendant in advance to maintain the requisite number of truckloads.

         For the first four years of the parties' contractual relationship, Plaintiff was a valued customer and revenue source for Defendant, and Defendant was a reliable and important supplier to Plaintiff. From 2013 to 2017, Plaintiff's business grew steadily and its market share increased, making it more of a competitor to Defendant. Plaintiff's gasoline cans began to displace Defendant's gasoline cans with key customer accounts.

         This change caused Defendant to begin treating Plaintiff as a competitor, rather than as a customer and partner. Thereafter, Defendant began to frustrate and obstruct the supply of manufactured gasoline cans to Plaintiff as follows:

a. failing to keep sufficient stock of No. Spill products on hand so that Plaintiff's orders could not be fulfilled, and Plaintiff could not deliver the ordered products to its customers (some of whom Defendant was pursuing for sales of its own products);
b. dramatically changing the amount of machine and employee time it devoted to production of No. Spill products, resulting in lowered production volumes, so that Plaintiff would receive lower volumes of product to sell to its own customers; and
c. discontinuing, modifying, or failing to properly execute quality control procedures as to No. Spill products produced at Defendant's facility, so that Plaintiff would have fewer products of adequate quality to sell to its customers and so that Plaintiff's customers would potentially receive products of a lower quality.

         At least one of the unmerchantable products was sent to a dealer, which returned the defective can to Plaintiff, causing injury to Plaintiff's goodwill and reputation with that dealer. And because Defendant was not maintaining at least eleven truckloads as required by the Supply Agreement, Plaintiff was unable to sell millions of dollars of product to dealers and other third parties, which damaged Plaintiff.

         On August 22, 2017, Defendant provided notice of its intent to terminate the Supply Agreement effective May 23, 2018. On May 21, 2018, Plaintiff gave written notice it was exercising the purchase option outlined in the Supply Agreement (“Option Notice”). The Option Notice stated:

Pursuant to our existing Supply Agreement contract, please consider this letter as notice that No. Spill, Inc. is hereby exercising the Option to purchase the blow molding machine that is currently running gasoline cans for No. Spill, Inc. The Contract specifically spells out a Bekum blow molding machine, Model BM-705D, Serial Number 204705-5-053. This Option also extends to the support equipment identified in the Contract.[20]

         The serial number identified in the Option Notice for the machine is the same serial number identified in Exhibit D of the Supply Agreement. In the Option Notice, Plaintiff also asked Defendant to state whether a different blow molding machine was being used to manufacture the products, provide information concerning the current machine being used, and to provide an opportunity to inspect such equipment. On May 31, 2018, Defendant refused Plaintiff's exercise of its option to purchase the blow molding machine.

         Plaintiff alleges damages as a result of Defendant's breaches of contract that include a loss of production capacity, sales, revenue, and profits at times of high order demand and thereafter. Plaintiff took efforts to try to mitigate its loss of production capacity caused by Defendant's breaches, but was unable to completely mitigate the losses.

         Plaintiff's Trade Dress

         Since at least 1989, No. Spill and its predecessors have continuously and substantially advertised, marketed and sold gasoline cans with a distinctive horizontal plastic nozzle assembly having a tapered spout. Also since that time, No. Spill fuel containers bearing the No. Spill Trade Dress have been sold nationwide through third-party retailers including Amazon, Walmart, Ace Hardware, Stihl dealers, True Value hardware dealers, Do it Best hardware dealers, John Deere dealers, Honda dealers, Briggs and Stratton dealers and Home Depot. During at least the past ten years, Plaintiff sold its fuel containers bearing the No. Spill Trade Dress in all fifty states and multiple foreign countries. Sales by year for the past five years have increased substantially. In the course of advertising its products, No. Spill prominently highlighted its distinctive nozzle assembly in particular, and the No. Spill Trade Dress in general. No. Spill gasoline cans have a product label affixed to them with an outline of its container shape framing the word "No," as seen here:

         (Image Omitted)

         Defendant manufactures and sells within the United States plastic gasoline containers that employ a flash suppressor positioned through the opening of the gasoline container. These fuel containers are sold in a few different sizes and, depending on the nozzle, as either the "SmartControl" gasoline can or as the "Ameri-Can" gasoline can. They include a label affixed thereto that bears the word "SCEPTER" in all capital letters. The bodies of the fuel containers include raised letters molded into two of the sides thereof and spell the word "SCEPTER" in all capital letters.

         Plaintiff highlights the following features shared by Plaintiffs and Defendant's products: (1) an open handle formed into the top of the container; (2) a nozzle assembly installed on the top of the container adjacent to the open handle; (3) a tapered spout projecting horizontally; (4) a cap for covering the end of the spout tethered to the spout with a flexible plastic strap, secured at one end to the underside of the spout; and (5) the red container combined with a tapered, molded black spout having a tether connected to the underside. Plaintiff provides the following pictorial representation of the two containers, with Plaintiffs on the left and Defendant's on the right:

         (Image Omitted)

         By way of comparison, Plaintiff submits a pictorial representation of a Scepter developmental fuel container; one that it claims does not utilize Plaintiff's trade dress:

         (Image Omitted)

         Plaintiff also provides examples of several other fuel containers in the marketplace that are dissimilar to both the No. Spill and Scepter fuel containers. These examples utilize either a different spout configuration (angled or vertical), different handle placement, or different container shapes.

         The SAC alleges four claims against this Defendant: (1) Count III for breach of contract under Kansas law based on Defendant's failure to meet production requirements; (2) Count IV for breach of contract claim under Kansas law based on Defendant's refusal to allow Plaintiff to exercise its option to purchase the Bekum blow molding machine; (3) Count V for trade dress infringement under the Lanham Act; and (4) Count VI for unfair competition under Kansas law.

         III. Discussion

         A. Breach of Contract Claims (Counts III and IV)

         In Count III, Plaintiff alleges Defendant breached the production requirements in the Supply Agreement by: (1) failing to meet quality control standards; (2) refusing to keep the required levels of truck load inventory on hand; (3) refusing to supply submitted order quantities; and (4) refusing to manufacture orders on weekends without additional charge. In Count IV, Plaintiff alleges that Defendant breached the Supply Agreement by refusing to honor its purchase option on the blow molding machine.

         The parties agree that Kansas law governs the contract claims in this matter. Under Kansas law, a party establishes breach of contract by proving five elements: “(1) the existence of a contract between the parties; (2) sufficient consideration to support the contract; (3) the plaintiff's performance or willingness to perform in compliance with the contract; (4) the defendant's breach of the contract; and (5) damages to the plaintiff caused by the breach.”[21]Defendant moves to dismiss both contract claims on the basis that Plaintiff did not plead adequate facts establishing its performance or willingness to perform in compliance with the Supply Agreement. Additionally, Defendant argues Plaintiff's damages claim for lost profits, loss of revenue, and lost sales is foreclosed by the Supply Agreement's limitation of liability provision. The Court addresses these arguments in turn.

         1. Plaintiff's Performance

         a. Count III-Production Requirements

         Defendant argues that Plaintiff fails to allege facts to support its conclusory assertion that it performed its obligations under the Supply Agreement. Defendant identifies myriad contractual provisions that imposed certain requirements on Plaintiff, and takes the position that Plaintiff must specifically allege compliance with each one in order to state a plausible contract claim under Rule 12(b)(6).[22]

         Plaintiff's SAC goes well beyond the conclusory assertion that it performed or was willing to perform under the contract. On the quality control issue, Plaintiff alleges that it provided Defendant with notice when it was delivered defective products-it “confronted [Defendant] with pictures of the defective cans.”[23] The Court reasonably infers from this allegation that Plaintiff fulfilled its obligation to notify Defendant when it shipped defective or nonconforming inventory.

         Defendant's argument that Plaintiff failed to allege performance related to inventory maintenance and purchase order fulfillment also falls short. Plaintiff alleges that it complied with the Supply Agreement's order procedure by “submit[ing] regular, consistent orders” and “provid[ing] [Defendant] with good-faith forecasts as requested.”[24] Plaintiff also provides a list of dates from February 2017 through December 2017 that Defendant allegedly did not keep the required amount of inventory on hand. Plaintiff alleges this resulted in Defendant accepting ...

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