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Oz Garments Hangzhou Co. Ltd. v. American Achievement Corp.

United States District Court, N.D. Texas, Dallas Division

April 23, 2019

OZ GARMENTS HANGZHOU CO. LTD. and IN HONG KONG GROUP LIMITED, Plaintiffs/Counter-Defendants,
v.
AMERICA ACHIEVEMENT CORP., Defendant/Counter-Plaintiff.

          MEMORANDUM OPINION AND ORDER

          JANE UNITED STATES DISTRICT JUDGE

         Before the Court is Counter-Defendants Oz Garments Hangzhou Co. Ltd. and In Hong Kong Group Limited's (collectively “Oz”) Rule 12(b)(6) Motion to Dismiss Counter-Plaintiff American Achievement Corp.'s (“AAC”) counterclaims. Doc. 18. For the reasons stated, the Court GRANTS Oz's Motion to Dismiss (Doc. 18).

         I. BACKGROUND [1]

         This contract dispute involves parties in the graduation cap-and-gown business. Oz is a global manufacturing company that manufactures graduation caps, gowns, and accompanying apparel. Doc. 1, Oz's Compl., ¶ 10. AAC is in the business of providing graduation products to schools and universities, and has utilized Oz as a supplier for some of its graduation products. Id. ¶ 16; Doc. 13, AAC's Counterclaims, 3 ¶¶ 1-2. Prior to 2018, Oz and AAC never operated under any supply agreement and the only agreements governing the parties were individual purchase orders. Doc. 1, Oz's Compl., ¶ 18.

         On or around March 15, 2018, the parties agreed on and entered into the Master Supply Agreement (“Agreement”). Id. ¶ 19; see also Doc. 1-1, Ex. 1, Agreement. In early 2018, while the parties were negotiating the terms of the Agreement, AAC had multiple outstanding purchase orders with Oz (“Outstanding Orders”). Doc. 13, AAC's Counterclaims, 3 ¶¶ 3, 6. The parties thus entered into the Agreement conditioned upon Oz fulfilling the Outstanding Orders, which was memorialized in § 5 and Exhibit F of the Agreement. Id. at 4 ¶ 11; Doc. 1, Oz's Compl., ¶ 26; Doc. 1-1, Ex. 1, Agreement, 4 § 5. The parties dispute whether this condition was met. Compare Doc. 1, Oz's Compl., ¶ 28 (“The condition precedent was met.”) with Doc. 13, AAC's Counterclaims, 4 ¶ 12 (“Plaintiffs failed to timely deliver the Outstanding Orders.”).

         On August 23, 2018, Oz originally brought suit against AAC for breach of contract alleging that AAC failed to comply with many of its obligations under the Agreement. See, e.g., Doc. 1, Oz's Compl., ¶¶ 50-54. On October 22, 2018, AAC filed its Answer (Doc. 11), and on November 12, 2018, AAC supplemented its Answer by asserting two counterclaims against Oz for breach of contract and trade secret misappropriation under Texas law. Doc. 13, AAC's Counterclaims, 5-6 ¶¶ 21-33. Oz filed this Motion to Dismiss (Doc. 18) on December 17, 2018. AAC filed its Response (Doc. 29) and Oz their Reply (Doc. 34). However, after the close of briefing, on March 25, 2019, AAC filed a Notice of Dismissal of its trade secret misappropriation claim agreeing to dismiss this claim without prejudice. Doc. 35, Notice of Dismissal, 1-2. Thus, the only counterclaim remaining is AAC's breach-of-contract counterclaim. Having been fully briefed, the Court now addresses the sufficiency of this claim.

         II. LEGAL STANDARD

         Under Rule 8(a)(2) of the Federal Rules of Civil Procedure, a complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Rule 12(b)(6) authorizes a court to dismiss a plaintiff's complaint for “failure to state a claim upon which relief can be granted.” Id. 12(b)(6). In considering a Rule 12(b)(6) motion to dismiss, “[t]he court accepts all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007). “The court's review [under 12(b)(6)] is limited to the complaint, any documents attached to the complaint, and any documents attached to the motion to dismiss that are central to the claim and referenced by the complaint.” Ironshore Europe DAC v. Schiff Hardin, L.L.P., 912 F.3d 759, 763 (5th Cir. 2019) (emphasis added) (quoting Lone Star Fund V (U.S.), L.P. v. Barclays Bank PLC, 594 F.3d 383, 387 (5th Cir. 2010) (citation omitted)).

         To survive a motion to dismiss, a plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). “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.” Id. “The plausibility standard is not akin to a ‘probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. When well-pleaded facts fail to achieve this plausibility standard, “the complaint has alleged-but it has not shown-that the pleader is entitled to relief.” Id. at 679 (cleaned up).

         III. ANALYSIS

         AAC's breach-of-contract counterclaim has two parts: (1) that Oz failed to timely deliver to AAC the Outstanding Orders listed in Exhibit F to the Agreement (the “First Part”) and, (2) that Oz solicited, hired, and/or otherwise engaged AAC contractors in violation of § 15(d) of the Agreement (the “Second Part”). Doc. 13, AAC's Counterclaims, 5 ¶¶ 22-23. The Court addresses in turn whether each part of this breach-of-contract counterclaim states a claim.

         A.The First Part of AAC's Counterclaim Fails Because § 5 of the Agreement Is a Condition Precedent.

         Oz argues that the First Part of AAC's breach-of-contract counterclaim fails to state a claim because the alleged failure to deliver the Outstanding Orders was not a breach of an affirmative covenant in the contract, but instead a condition precedent to contract formation, which cannot form the basis of a breach-of-contract claim. Doc. 18, Oz's Mot., 7-8.

         “A condition precedent is an act or event that must take place before performance of a contractual obligation is due.” Cedyco Corp. v. PetroQuest Energy, LLC, 497 F.3d 485, 488 (5th Cir. 2007) (applying Texas law).[2] Therefore, a condition precedent cannot form the basis of a breach-of-contract claim because the condition must occur before the contract becomes enforceable. Tex. Delta Mech., Inc. v. Republic Underwriter's Ins. Co., 2011 WL 2572492, at *3 (Tex. App.-Dallas June 30, 2011, no pet.) (“A condition precedent to an obligation to perform is an act or event, which occurs subsequently to the making of a contract, that must occur before there is a right to immediate performance and ...


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