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Marlow Industries, Inc. v. Sealy, Inc.

United States District Court, E.D. Kentucky, Central Division, Lexington

August 3, 2017

SEALY, INC., Defendant.


          Danny C. Reeves, United States District Judge

         Plaintiff Marlow Industries, Inc. (“Marlow”) filed a Complaint on February 6, 201');">17, in which it raises claims against Sealy, Inc. (“Sealy”) based on Sealy's alleged wrongful termination of the parties' contract. [Record No. 1');">1] Sealy filed an Answer to the Complaint with accompanying counterclaims, alleging that Marlow provided nonconforming goods in breach of the parties' agreement. [Record No. 24] One of Sealy's counterclaims seeks a declaratory judgment regarding a provision of the parties' contract. [Id.] Marlow then moved to dismiss this claim because it is redundant of issues raised in Marlow's Complaint. [Record No. 27] Marlow is correct regarding this assertion. As a result, its motion will be granted.


         Sealy contracted with Marlow to supply engines for Sealy's IdealTemp mattress. [Record No. 24, ¶ 8] The parties' agreement obligated Marlow to supply products that conformed to the product specifications outlined in Section 3.2 and were free from defects. [Id. at ¶ 9; Record No. 31');">1, Ex. 1');">1, p. 7]

         The agreement provided Sealy with the right to cancel a purchase order for default or for convenience. [Record No. 31');">1, Ex. 1');">1, p. 8][1');">1" name="FN1');">1" id= "FN1');">1">1');">1] Under Section 4.5.a of the agreement, Sealy was authorized to cancel a purchase order for cause “immediately upon written notice should an Event of Default occur and be occurring . . . .” [Id.] The agreement defines an event of default to include any breach of the contract. [Id. at 1');">19] Marlow would be financially responsible for any costs incurred in connection with a cancellation for cause. [Id. at 8] Section 4.5.b provided Sealy with the right to cancel a purchase order, or any portion thereof, for convenience. [Id.] However, Sealy would be required to pay Marlow the costs of any products that had been completed, or were in the process of being completed, in response to the purchase order. [Id. at 8-9]

         The agreement also defined the circumstances under which Sealy was authorized to cancel the entire agreement for cause or for convenience. Sections 1');">15.1');">1 and 1');">15.2 gave Sealy the right to terminate the agreement for cause if Marlow either allowed an event of default and failed to cure or allowed three or more events of default within any 1');">12-month period, regardless of whether it subsequently cured the default. [Id. at 1');">18-1');">19] Under section 1');">15.3, Sealy could terminate the agreement for convenience, without cause. [Id.] In the event that Sealy terminated for convenience, Marlow would be entitled to full payment for all completed products and any products in the process of being completed to fill a purchase order. [Id.]

         In late 201');">15, Sealy placed 1');">11');">1 orders for 1');">12, 1');">11');">10 products. [Record No. 24, ¶ 1');">18] Marlow delivered 6, 720 products to Sealy between September 201');">15 and June 201');">16, for which Sealy paid Marlow $2, 654, 400.00. [Id. at ¶¶ 1');">18, 1');">19] Between January and September of 201');">16, Sealy conducted a market test of the IdealTemp mattress containing Marlow's products. [Id. at ¶ 20] Sealy received multiple retailer and customer complaints regarding the products, which led it to conclude that the products were defective and failed to comply with the parties' agreed product specifications. [Id. at ¶ 21');">1] On November 4, 201');">16, Sealy notified Marlow that it was terminating the agreement for cause based on Marlow's events of default. [Id. at ¶ 28]

         Marlow's Complaint includes three claims for relief. Marlow's first claim asserts that Sealy breached the parties' agreement. [Record No. 1');">1, ¶ 51');">1] This claim is partially based on Marlow's allegation that Sealy cancelled the purchase orders for convenience rather than for cause under Sections 4.5.a and 4.5.b of the agreement. [Id. at ¶¶ 68-70] The second claim is that Sealy breached its duty of good faith and fair dealing, in part, by fabricating continuing defaults to cancel the agreement for cause rather than for convenience. [Id. at ¶¶ 84-85] Marlow's third claim requests a declaratory judgment. [Id. at ¶ 95]

         Sealy asserts three counterclaims against Marlow. [Record No. 24] Sealy's first two claims seeks remedies for Marlow's provision of nonconforming goods. [Id. at ¶¶ 33-50] Sealy seeks a declaratory judgment through its third claim, contending that it canceled the purchase orders for cause within the meaning of Section 4.5.a rather than for convenience under Section 4.5.b. [Id. at ¶¶ 51');">1-55]


         Marlow moves to dismiss Sealy's third counterclaim seeking a declaratory judgment. A motion to dismiss under Federal Rule of Civil Procedure 1');">12(b)(6) must be construed in the light most favorable to the counter-plaintiff and all allegations must be accepted as true. See Lambert v. Hartman, 1');">17 F.3d 433');">51');">17 F.3d 433, 439 (6th Cir. 2008). The counter-complaint must allege “enough facts to state a claim for relief that is plausible on its face” to survive a motion to dismiss. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).

         Marlow contends that Sealy's counterclaim for declaratory relief is subject to dismissal. According to Marlow, Sealy's counterclaim does no more than raise an issue of contractual interpretation that is addressed in Marlow's Complaint. In other words, it argues that, because resolving Marlow's claims will conclusively resolve the issue raised in Sealy's counterclaim, the counterclaim is duplicative and should be dismissed. Sealy responds that its counterclaim deals with a specific contractual issue that will not be resolved by deciding Marlow's claims. Moreover, Sealy claim that it would be premature to dismiss Sealy's counterclaim at this stage of the litigation because it is too early to ascertain whether the parties' claims are identical.

         Courts have discretion to grant or deny a request for declaratory judgment. Grand Trunk Western R. Co. v. Consolidated Rail Corp., 746 F.2d 323, 325 (6th Cir. 1');">1984) (citation omitted). Generally, a declaratory judgment is only appropriate when it would either “serve a useful purpose in clarifying and settling the legal relations in issue” or “terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding.” Id. (citation omitted). The court should decline to grant declaratory judgment when neither of these results would be accomplished. Id.

         Under the mirror image rule, a counterclaim that does no more than restate issues raised in a complaint may be dismissed as redundant. The basis of the rule is that, “when a counterclaim merely restates the issues as a ‘mirror image' of the complaint, the counterclaim serves no purpose.” Federal Deposit Ins. Corp. v. Project Development Corp., 1');">19 F.2d 289');">81');">19 F.2d 289 (6th Cir. 1');">1987) (citation omitted). And a counterclaim serves no purpose when the claim “exactly corresponds” to the plaintiff's claim “such that resolution of one claim would entirely dispose of the other claim.” Stryker Corp. v. Ridgeway, No. 1');">1: 1');">13-CV-1');">1066, 201');">14 WL 3704284 (W.D. Mich. July 24, 201');">14). Accordingly, a counterclaim will be dismissed under the mirror image rule “where it is clear that there is a complete identity of factual and legal issues between the complaint and the counterclaim.” Aldens, Inc. v. Packel, 524 F.2d 38, 51');">1-52 (3rd Cir. 1');">1975). However, the counterclaim should only be dismissed if “there is no doubt that it will be rendered moot by adjudication of the main action.” ...

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