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Cemex Construction Materials Florida, LLC v. Armstrong World Industries, Inc.

United States District Court, M.D. Florida, Jacksonville Division

February 15, 2018



          Marcia Morales Howard Judge

         THIS CAUSE is before the Court on Plaintiff/Counterclaim Defendant CEMEX Construction Materials Florida, LLC's Motion to Dismiss Second Amended Counterclaim and Supporting Memorandum of Law (Doc. No. 63; CEMEX Motion), filed on March 29, 2017. Defendant/Counterclaim Plaintiff Armstrong World Industries, Inc. filed a response in opposition to the CEMEX Motion. See Armstrong World Industries Inc.'s Response in Opposition to CEMEX Construction Materials Florida LLC's Motion to Dismiss Second Amended Counterclaim (Doc. No. 65; Response to CEMEX). Accordingly, the motion is ripe for review.

         I. Background

         A. Facts [1]

         This action arises from a contractual relationship between a manufacturer and a distributor of building materials. In its Second Amended Counterclaim (Doc. No. 49; SAC), Defendant/Counterclaim Plaintiff Armstrong World Industries, Inc. (Armstrong), a Pennsylvania corporation with its principal place of business in Lancaster, Pennsylvania, states that it is a manufacturer of “acoustical ceiling products, including but not limited to ceiling tiles, grid, acoustical wall panel and installation, maintenance and accessory products, ” which it collectively refers to as the “Ceiling Products” (Ceiling Products or Products). SAC ¶¶ 1, 9. Armstrong distributes its Ceiling Products via wholesale distributors located in specified geographic areas, known as “territories.” Id. ¶ 10. In December of 2006, Armstrong entered into a non-exclusive distribution agreement (Distribution Agreement or Agreement) with Rinker Materials of Florida, Inc. (Rinker) in which it authorized Rinker to purchase and resell Armstrong's Ceiling Products. See id. ¶¶ 12; Distribution Agreement. The Distribution Agreement identifies Rinker's territory as specific counties in Florida, Georgia, and Alabama, see id. at ¶ 20, and as relevant to this action contains the following terms:

[Distribution Agreement ¶ 1]: Armstrong appoints each Distributor to be its non-exclusive wholesale distributor located within the geographic area described in Attachment A hereto as Distributor's “Territory[]” . . .
[Distribution Agreement ¶ 2]: Distributor will sell Ceiling Products to accounts serving the construction industry. Distributor is authorized to sell and distribute Ceiling Products only from those distribution locations within the Territory listed on Attachment A as “Distributor Locations.” The term “Distributor” includes each authorized Distributor Location, whether or not owned by an affiliate or separate legal entity . . .
[Distribution Agreement ¶ 3]: Distributor is authorized to sell and distribute Ceiling Products (including will call or pick-up sales) only to accounts whose billing address is located in the Territory or for construction products located in the Territory. In the event Distributor sells or distributes Ceiling Products in violation of this section, and without prejudice to any other rights or remedies it may have, Armstrong may (1) bill back to Distributor any discount given by Armstrong on the Ceiling Products involved; (2) suspend any or all discounts or rebate programs to Distributor at the discretion of Armstrong; or (3) terminate Distributor . . .
[Distribution Agreement ¶ 4]: Distributor will use its best efforts to promote, sell and service all Ceiling Products within its Territory . . .

Id. ¶¶ 15-18; see also SAC, Ex. A: Armstrong World Industries, Inc. Building Products Division Non-Exclusive Distribution Agreement (Distribution Agreement) ¶¶ 1-4. The Distribution Agreement further provides that “sales of Ceiling Products outside Distributor's Territory in violation of paragraph 2” shall constitute a breach of the Distribution Agreement. SAC ¶ 19; Distribution Agreement ¶ 20(b). Notably, the Distribution Agreement is governed by Pennsylvania law. See Distribution Agreement ¶ 24.

         In 2008, Plaintiff/Counterclaim Defendant CEMEX Construction Materials Florida, LLC (CEMEX) acquired Rinker and assumed the role as Armstrong's local distributor pursuant to the Distribution Agreement. See SAC ¶ 13. According to Armstrong, because the markets for Ceiling Products vary across geographic regions, Armstrong sold its Ceiling Products to CEMEX at a significant discount as compared to the wholesale price for the same Ceiling Products in other regions, such as New York. Id. ¶ 21. Armstrong based its pricing of products sold through CEMEX on its belief that CEMEX would only distribute the Ceiling Products within its contractually-assigned territory. See id. ¶ 22. Indeed, it is Armstrong's position that CEMEX was not authorized to sell Ceiling Products “for distribution or redistribution” anywhere outside of its specified territory. Id. Armstrong asserts that this practice helps “encourage its distributors to promote and grow business within their territories, ” while simultaneously “maximiz[ing] Armstrong's sales and profits[.]” Id. ¶ 11. On occasion, Armstrong also provided CEMEX with a special pricing exception (SPE) based on CEMEX's representations that the Ceiling Products would be sold only to a specified contractor and used for a specified construction job within its assigned territory. See id. ¶ 23.

         As early as 2009, Armstrong became aware that CEMEX had sold Ceiling Products for use in a construction project outside of its contractually-assigned territory. Id. ¶ 25. This prompted Armstrong to send CEMEX a letter reminding CEMEX of its obligations under the Distribution Agreement. See id. Then, in 2011, CEMEX allegedly began conspiring with Metro Interior Distributors Corporation (Metro), [2] a New York Corporation with its principal place of business in New York, to acquire Ceiling Products intended for distribution in Florida and ship them to New York for resale. Id. ¶ 30. The scheme purportedly began after Matt Sutherland, president of Sutherland Group, met with and spoke to Jimmy Alderson (Alderson), the CEMEX sales representative responsible for ordering Armstrong's Ceiling Products. See id. ¶ 31. After several meetings and phone calls between these two individuals, Metro and CEMEX “conspired [] to purchase over 20 million square feet of Armstrong Ceiling Products intended for distribution in Florida and transship[] the [P]roduct[s] hundreds of miles outside of CEMEX's authorized territory for resale to customers in New York, thereby providing Metro with sufficient quantities of [P]roducts to improperly hold itself out as an authorized distributor of Armstrong Ceiling Products.” Id. ¶ 33. Initially, the scheme involved Metro placing orders with CEMEX for Armstrong's Ceiling Products, CEMEX ordering the Products from Armstrong, and CEMEX later billing Metro's credit card for the purchases.[3] See id. ¶¶ 32, 36. Metro would then arrange for a truck to pick up the Ceiling Products from CEMEX's Jacksonville location and haul them to New York. Id. ¶ 38. Later, “the parties” arranged for large shipping containers to be loaded with Ceiling Products and shipped to New York. Id. ¶ 39.

         In furtherance of the purported scheme, Armstrong maintains that CEMEX and Metro took steps to conceal their illicit activities by, inter alia, removing SKU codes from certain Ceiling Products, misrepresenting the location of construction projects, and dealing in cash. See id. ¶¶ 34-35, 42. By way of example, Armstrong contends that CEMEX would input sales to Metro through its own “CASH 1268” account, [4] allowing CEMEX to avoid adding Metro as an account customer which would, in turn, have created a record that the sales to Metro were intended for shipment to, and use in, New York. See id. ¶ 43. CEMEX also repeatedly failed to identify Metro on the list of its “top 10-15 accounts” which it provided annually to Armstrong, allegedly to hide all sales made to Metro, CEMEX's true largest customer. See id ¶¶ 44-45. In other instances, CEMEX would request an SPE discount from Armstrong for use on a particular in-territory job site, “but then resell [some or all of] the material purchased under the SPE discount to Metro.” See id. ¶¶ 46-50. Between 2011 and July of 2013, CEMEX ultimately sold and shipped approximately $7, 300, 000 in Ceiling Products to Metro in New York. Id ¶ 40.

         In July of 2013, Armstrong noticed that CEMEX placed two unusually large orders prompting Armstrong to inquire as to the destination of the Ceiling Products and CEMEX to subsequently reveal that the products were intended for Metro in New York. See id ¶ 51. Armstrong again informed CEMEX that out-of-territory sales were not permitted, and “CEMEX falsely promised that it would not sell any more [P]roduct[s] to Metro[.]” Id According to Armstrong, CEMEX's representatives then began making a number of misrepresentations regarding the nature and scope of its sales to Metro, including, but not limited to:

. A July 11, 2013 phone call between Joe Kirkpatrick (Kirkpatrick) - CEMEX's General Manager - and Frank Pasquerello (Pasquerello) - Armstrong's Area Manager - where Kirkpatrick represented to Pasquerello that the shipments to Metro were “for export out of the port of Jacksonville” when in reality the shipments were “transported to Metro via truck and/or railroad to New York.” Id. ¶ 52.
. A July 18, 2013 phone call between Bo Salters (Salters) - another manager for CEMEX - and Pasquerello in which Salters represented to Pasquerello that Sutherland approached CEMEX on July 15 about making a cash purchase of Ceiling Products in full container quantities and threatened to sue CEMEX and Armstrong if they did not sell him the Products. See id ¶ 53.
. A July 24, 2013 e-mail from Kirkpatrick to Pasquerello falsely informing Pasquerello that the only purchases of Ceiling Products by Metro were two containers in April and May of 2013 destined for export out of the country from the port of Jacksonville. See id. ¶¶ 55, 57-58.
. A July 29, 2013 e-mail from Kirkpatrick to Pasquerello informing Pasquerello that CEMEX's records only indicated one cash transaction involving Metro. See id. ¶ 60.
. A September 10, 2013 meeting with Kirkpatrick, Salters, and Pasquerello in which the CEMEX managers knowingly concealed sales from CEMEX to Metro and represented that sales of a particular Ceiling Product were properly within CEMEX's assigned territory. See id. ¶¶ 64-65.
. An October 4, 2013 e-mail from Kirkpatrick to Pasquerello in which Kirkpatrick provided Pasquerello with a list of the largest sales of a particular Ceiling Product from CEMEX's Jacksonville office but deliberately omitted any sales to Metro, to which “CEMEX had sold [] over 1.5 million square feet of [Ceiling Product] for $1.7 million during the 18 months prior to the e-mail.” Id. ¶ 68.
. An October 10, 2013 e-mail from Kirkpatrick to Pasquerello falsely indicating that CEMEX made no additional sales to Metro under its “CASH 1268” account. See id. ¶ 71.

         Although CEMEX allegedly agreed to stop “bootlegging” Armstrong's Products outside of its assigned territory, Armstrong avers that CEMEX and Metro subsequently conspired to secretly continue this practice through the use of a straw purchaser, Acoustical and Interior Products (Acoustical), which effectively acted as an agent for CEMEX.5 See id. ¶¶ 74-75. CEMEX and Metro allegedly implemented the revised scheme in the following manner: Jimmy Alderson (Alderson), the CEMEX sales representative responsible for making sales to Metro, was a friend and brother-in-law of the owner of Acoustical. See id. ¶ 79. Taking advantage of this relationship, Alderson would submit Metro's sales orders to Armstrong as if they were intended for Acoustical, despite the fact that these sales orders were not made by Acoustical. See id. ¶ 81. Armstrong would then ship the Ceiling Products to CEMEX's Jacksonville location “under 5 Armstrong also alleges that, when Acoustical was not available to participate in the scheme, CEMEX would process sales to Metro via another local company - Southeastern Building and Supply - an inactive business entity owned by the general manager of CEMEX's Jacksonville office, Dave McGinty (McGinty). See id. ¶¶ 92, 94. the mistaken understanding and belief that the products were going to be resold [to Acoustical] within CEMEX's territory pursuant to the terms of the Distribution Agreement[, ]” but in reality the Ceiling Products would be sold to Metro. Id. ¶ 82. As part of this arrangement, Metro would pay Acoustical for the Ceiling Products using its own credit card, and Acoustical would use these funds to pay CEMEX directly. Id. ¶ 86. Acoustical would receive “a flat margin of 5% on the sales[, ]” with the rest of the mark-up going to CEMEX. Id. ¶ 84.

         Meanwhile, in 2014, CEMEX hired McGinty to head its Jacksonville office. Id. ¶ 94. In April of 2015, Armstrong again became suspicious of CEMEX's sales, see id. ¶ 97, leading Armstrong to request a “breakdown of all the Armstrong ceiling tile and grid that CEMEX sold to Acoustical in 2015[, ]” id. ¶ 98. CEMEX refused to provide the requested information, with McGinty informing Armstrong via e-mail that Acoustical would not allow it to do so because it was a competitor of CEMEX. See id. ¶ 99. Not satisfied with this response, Armstrong pressed further. See id. ¶¶ 101-02. Soon thereafter, McGinty purportedly admitted to Pasquerello that the Ceiling Products intended for Acoustical actually went to Metro in New York. See id. ¶ 104. By the time Armstrong discovered that CEMEX was using Acoustical as a straw purchaser, CEMEX had made over $6, 000, 000 in sales to Metro via Acoustical. See id. ¶ 77. As a result of CEMEX's alleged misrepresentations and continuing violations of the Distribution Agreement, Armstrong terminated its contract with CEMEX on or around May 7, 2015, effective as of July 6, 2015. See id. ¶ 107. CEMEX subsequently terminated McGinty from his position with CEMEX. See id. ¶ 108. Also in May of 2015, Sutherland met with a representative from Armstrong and acknowledged “Metro's bootlegging activities.” Id. ¶ 113. According to Armstrong, during this meeting, Sutherland “opened a briefcase full of cash and showed it to the Armstrong representative while bragging about how easy it was to purchase Armstrong Ceiling Products for cash and ship them to New York.” Id. Sutherland also threatened to continue the practice “unless Armstrong agreed to appoint Metro as an authorized distributor and provide Metro with favorable pricing in the New York metropolitan area.” Id. In accordance with the terms of the Distribution Agreement, and particularly that provision which allowed Armstrong to bill back discounts given on Ceiling Products sold or distributed outside CEMEX's assigned territory, Armstrong later sent CEMEX an invoice for approximately $4, 600, 000 in illegitimately-obtained discounts; however, CEMEX has refused to pay the invoice. Id. ¶ 114.

         B. Procedural History

         On February 26, 2016, alleging the existence of diversity jurisdiction, Armstrong removed this action, which CEMEX originally filed in Duval County Circuit Court, to federal court. See generally Notice of Removal (Doc. No. 1). In its single count complaint CEMEX seeks a declaratory judgment regarding its “rights, duties, and obligations with respect to the Distribution Agreement.” See generally Complaint (Doc. No. 2; Complaint). Following the removal, Armstrong filed an answer and counterclaims in which it sought damages from not only CEMEX but also Metro. See generally Armstrong World Industries, Inc.'s Answer and Counterclaims (Doc. No. 3; Counterclaim). Upon review, this Court, sua sponte, issued an order (Doc. No. 6) striking the Counterclaim as an impermissible “shotgun pleading.” Thereafter, on March 10, 2016, Armstrong filed its Amended Counterclaim, see generally Armstrong World Industries, Inc.'s Answer and Amended Counterclaims (Doc. No. 7), and on February 22, 2017, with leave of Court, Armstrong filed the SAC, see generally SAC. Thus, the SAC is the operative pleading with respect to the counterclaims in this action.

         Both Metro and CEMEX filed motions to dismiss the SAC, see CEMEX Motion; Counterclaim Defendant Metro Interior Distributors Corporation's Motion to Dismiss Armstrong's Second Amended Counterclaim and Supporting Memorandum of Law (Doc. No. 64; Metro Motion), and Armstrong filed responses in opposition, see Response to CEMEX; Armstrong World Industries Inc.'s Response in Opposition to Metro Interior Distributor's Corp.'s Motion to Dismiss Second Amended Counterclaim (Doc. No. 66; Response to Metro). After the CEMEX Motion and Metro Motion had been fully briefed, but before the Court had entered an order resolving the motions, Metro and Armstrong advised the Court that they had reached a settlement as to the claims between them. See Joint Motion to Drop Counterclaim Defendant Metro Interior Distributors Corp. as a Party by Counterclaim Plaintiff and Notice of Withdrawal of Metro's Motion to Dismiss Pursuant to Settlement as to Counterclaim Defendant Metro (Doc. No. 69; Joint Notice) filed on December 21, 2017. In the Joint Notice, Armstrong and Metro requested that the Court drop Metro as a party and dismiss the claims Armstrong asserted against Metro with prejudice. See id. at 1. Additionally, Metro withdrew the Metro Motion. See id. at 2. Metro and Armstrong advised the Court that counsel for CEMEX did not agree to the requested relief “as phrased.” Id. In light of the parties' settlement, the Court construed the Joint Notice as a joint stipulation of dismissal with prejudice as to the claims between Armstrong and Metro, dismissed the claims against Metro, and terminated the Metro Motion. See Order (Doc. No. 70). As a result, the only remaining counterclaims in this action are the claims brought against CEMEX in the SAC.

         In the SAC, Armstrong brings six claims against CEMEX. See id. Specifically, Armstrong asserts claims for breach of the Distribution Agreement (Count I), fraud/misrepresentation (Count III), unjust enrichment (Count IV), civil conspiracy (Count V), violation of Florida's Deceptive and Unfair Trade Practices Act (FDUTPA), Fla. Stat. § 501.201 et seq. (Count VII), violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act, 18 U.S.C. § 1962(c) (Count VIII), and conspiracy to violate the RICO Act, 18 U.S.C. § 1962(d) (Count IX). See generally SAC. In the CEMEX Motion, CEMEX seeks dismissal of all claims pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure (Rule(s)), for failure to state a claim upon which relief can be granted. See generally CEMEX Motion.

         Following the dismissal of Metro, on January 17, 2018, CEMEX filed CEMEX Construction Materials Florida, LLC's Motion to Amend Motion to Dismiss (Doc. No. 71; Motion to Amend). In the Motion to Amend, CEMEX seeks to amend the CEMEX Motion to include arguments raised by Metro in the Metro Motion but that CEMEX previously opted not to include in the CEMEX Motion. Specifically, CEMEX wishes to amend the CEMEX Motion to include the following arguments:

         1. With regard to the FDUTPA claim in Count VII, CEMEX seeks to argue that it fails to state a claim because:

a. Armstrong lacks standing;
b. the claim is not pled with particularity; and
c. it fails to allege conduct likely to cause harm to consumers.[6]

         2. With regard to the RICO claim in Count VIII, CEMEX seeks to argue that it fails to:

a. allege a RICO enterprise, a pattern, and continuity;
b. plead fraud with particularity; and
c. allege causation between CEMEX's activity and ...

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