UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

HayJo S.A. de CV

v. Civil No. 14-cv-196-JD Opinion No.

Sponge-Jet, Inc.

O R D E R

HayJo S.A. de CV, a Mexican corporation, and its president,

Sami Hayek Dominguez, brought suit against Sponge-Jet, Inc.

after Sponge-Jet terminated HayJo’s distributor agreement and an

employee of HayJo left to work for a new company.1 Sponge-Jet

moves for summary judgment. HayJo objects to summary judgment.

Preliminary Matters

Sponge-Jet charges in its reply that HayJo’s objection to

summary judgment is deficient because it lacks a statement of

material facts as required by Local Rule 56.1(b).2 Contrary to

1On October 23, 2015, Sami Hayek Dominguez filed a stipulation dismissing all of his claims with prejudice.

2In support, Sponge-Jet cites a First Circuit case that interprets a local rule in the District of Puerto Rico, which Sponge-Jet represents, without analysis, is the “analog to Local Rule 56.1(b).” Sponge-Jet is mistaken. As is plainly demonstrated in the cited case, the local rule in the District of Puerto Rico is not the analog of Local Rule 56.1(b) in this district, as it requires a format that is not required by Local Rule 56.1. See P.R. Am. Ins. Co. v. Rivera-Vazquez,

(1st Cir. 2010). Sponge-Jet’s challenge, however, HayJo’s objection includes a

section titled “Statement of Undisputed Material Facts.” That

section includes citations to the summary judgment record.

Therefore, HayJo complied with Local Rule 56.1.

Sponge-Jet objects generally in a footnote to emails

submitted by HayJo in support of its objection that they are in

Spanish without English translations. Under Local Rule 5.1(h),

“the court will reject documents not in the English language

unless translations are furnished.” In its objection, HayJo

translated some but not all of the emails that were submitted in

Spanish, specifically in Exhibits F and G. The court will

consider the translated parts of the emails, for purposes of

summary judgment, but not the emails provided only in Spanish.

Sponge-Jet requests in a footnote that HayJo’s objection be

struck for violating the parties’ protective order. The issue

of sealing confidential documents apparently has been resolved.

Standard of Review

Summary judgment is appropriate when the moving party

“shows that there is no genuine dispute as to any material fact

and the movant is entitled to judgment as a matter of law.”

Fed. R. Civ. P. 56(a). “A genuine dispute is one that a

reasonable fact-finder could resolve in favor of either party

and a material fact is one that could affect the outcome of the

2 case.” Flood v. Bank of Am. Corp.,

(1st Cir.

2015). Reasonable inferences are taken in the light most

favorable to the nonmoving party, but unsupported speculation

and evidence that “is less than significantly probative” are not

sufficient to avoid summary judgment. Planadeball v. Wyndham

Vacation Resorts, Inc.,

(1st Cir. 2015)

(internal quotation marks omitted).

Background

Sponge-Jet manufactures and sells abrasive blasting

material used to clean industrial infrastructure. The products

are sold globally. To distribute its products, Sponge-Jet makes

agreements with independent distributors.

In 2001, Michael Merritt, president of Sponge-Jet, met Sami

Hayek, president of HayJo. In 2003, Sponge-Jet appointed HayJo

as its distributor in Mexico. Hayek used his contacts in the

Mexican oil industry and the government to institute a

government standard that required a product that met the

specifications of the Sponge-Jet product. He also worked to

educate the oil industry about the requirement to use Sponge-Jet

products.

Hayek’s brother was his business partner at HayJo. Hayek

hired Francisco Malagon, Hayek’s brother’s son-in-law, to be the

main sales person at HayJo. Malagon was the only person in the

3 company who spoke English and became the main contact with

Sponge-Jet. Malagon was made the “commisario” in the company, a

position with particular duties under Mexican law.

Sponge-Jet and HayJo entered into a written distributorship

agreement in 2007. In 2009, Diego Cavalieri, Sponge-Jet’s vice

president for Latin American sales, wanted to cancel HayJo’s

distributorship but Merritt told him to give Hayek a chance.

HayJo and Sponge-Jet signed two new distributorship agreements

in 2010.

The agreements divided Mexico into two territories, north

and south. The terms of the agreements were the same except for

the regions covered. Under both agreements, HayJo was “the

authorized, Sole non-exclusive distributor of all Sponge-Jet’s

products designated in Exhibit ‘A’ (‘Products’).” Sponge-Jet

sold products to HayJo “at such prices and upon such terms and

conditions as determined and established by Sponge-Jet.” The

prices current at that time were provided in “Exhibit C.”

Under the agreement, Sponge-Jet also retained the right to

sell its products directly to customers in Mexico and promised

to “attempt to keep the Distributor informed of such sales.”

Sometimes Sponge-Jet paid HayJo commissions on the direct sales,

but the distributorship agreement did not require payment of

4 commissions. HayJo had received awards from Sponge-Jet for its

sales.

Cavalieri decided to sell Sponge-Jet products directly to a

customer in the north territory, the customer who brought in all

the money from the north territory, because he believed that

Hayek was not visiting that customer. From that point on HayJo

had no sales in the north territory. Because of a lack of sales

in the north territory, the agreement for the north territory

was terminated in May of 2011.

At the same time, Cavalieri was looking for another

distributor to sell Sponge-Jet products in Mexico. He asked

Malagon at HayJo to send him names of companies in Mexico that

were distributors of other products and said he wanted to

interview them. He did not tell Malagon directly that he

intended to hire another distributor to replace HayJo.

Malagon recommended David Andrade, whose company was Cajona

Maniemento, C.A. Andrade was a good friend of Malagon, and

Malagon’s father was Andrade’s godfather. By May of 2011,

Cavalieri had met with Andrade and Malagon to discuss having

Andrade become Sponge-Jet’s distributor. Cavalieri instructed a

Sponge-Jet employee to pay Malagon directly for a sale instead

of paying HayJo. In June of 2011, Cavalieri, Andrade, and

Malagon called on a customer of HayJo, which resulted in an

5 order that was placed in December of 2011. HayJo was not

informed of that sale.

In July of 2011, Cavalieri sent Malagon and Andrade a

distributorship agreement that included some of HayJo’s south

territory. Malagon and Andrade asked why they did not get all

of HayJo’s territory, and Cavalieri responded that the division

of the territory was to protect HayJo’s contracts and advised

them to be patient. In August, Cavalieri referred a customer or

a potential distributor to Malagon and Andrade and told them to

“take care of it.”

In October of 2011, Sponge-Jet sent HayJo notice that it

was terminating the remaining distributorship agreement, for the

south territory. HayJo states that the termination was

effective on January 20, 2012, and Sponge-Jet cites the

effective date as January 3, 2011.

HayJo and Hayek brought suit against Sponge-Jet in May of

2014, alleging claims of breach of contract, Count One; unjust

enrichment, Count Two; aiding and abetting breach of fiduciary

duty, Count Three; and breach of the duty of good faith and fair

dealing, Count Four. Hayek has stipulated to dismissal of his

claims, making Sponge-Jet’s motion for summary judgment on his

claims moot.

6 Discussion

Sponge-Jet moves for summary judgment on all of HayJo’s

claims. In support, Sponge-Jet contends that it properly

terminated the distributorship agreements so that no breach

occurred; that the distributorship agreements preclude the

unjust enrichment claim; that the aiding and abetting claim is

untimely, barred by the economic loss doctrine, and is legally

unsupportable; and that the breach of the duty of good faith and

fair dealing is duplicative of the breach of contract claim.

HayJo apparently concedes its unjust enrichment claim but

objects to the motion for summary judgment on all other grounds.

A. Unjust Enrichment

In a footnote, HayJo states that “[b]ecause [it]

acknowledges and admits that the contract between the parties

was valid and enforceable, there is no need for HayJo to press

its undue enrichment claims at this time.” Failure to contest a

ground raised in support of summary judgment results in waiver.

See Grenier v. Cyanamid Plastics, Inc.,

(1st

Cir. 1995); see also Cooper v. Lew,

, at *5 (N.D.

Ill. Nov. 24, 2015) (citing Bruce v. Ghosh,

, at

*14 (N.D. Ill. Apr. 13, 2015). Therefore, HayJo has waived

objection to summary judgment on the unjust enrichment claim.

7 B. Breach of Contract

HayJo alleges that it entered contracts in 2003 and 2010

with Sponge-Jet through which HayJo was the exclusive

distributor of Sponge-Jet products in Mexico. HayJo further

alleges that “[b]y using Mr. Malagon as Sponge-Jet’s distributor

in Mexico, Sponge-Jet breached the agreement.” That breach,

HayJo alleges, caused damages in excess of $75,000.

Sponge-Jet moves for summary judgment on the breach of

contract claim primarily on the ground that Sponge-Jet

terminated both distributorship agreements pursuant to the terms

of the agreements. As HayJo points out, the breach of contract

claim does not allege a breach based on termination of the

agreements. Therefore, Sponge-Jet moves for summary judgment on

a claim that was not pleaded and is denied for that reason.3

Sponge-Jet also asserts that it is entitled to summary

judgment on the claim that is pleaded, arguing that it did not

breach the distributor agreement by engaging Malagon, a HayJo

employee, to provide recommendations of other companies to

replace HayJo as distributor because the distributor agreement

did not prohibit it from using the distributor of its choice

3 In its reply, Sponge-Jet explains that it raised the termination issue based on HayJo’s responses to requests for admissions and states that HayJo’s objection eliminates the distributor agreement terminations as grounds for the breach of contract claim.

8 after terminating HayJo. But again, HayJo does not allege that

breach occurred based on termination.

HayJo alleges that Sponge-Jet breached the agreement by

engaging Malagon before termination, while HayJo was still the

distributor and Malagon was working for HayJo. Sponge-Jet

addresses termination of the agreements but not the alleged

breaches that occurred before termination. Therefore, Sponge-

Jet has not shown that it is entitled to judgment as a matter of

law on the claim that is pleaded in the complaint.4

C. Aiding and Abetting Breach of Fiduciary Duty

HayJo alleges that Malagon breached his fiduciary duty to

HayJo by developing his own distributorship with Sponge-Jet,

using contacts and information obtained while working at HayJo,

and that Sponge-Jet knowingly participated in Malagon’s breach.

Sponge-Jet moves for summary judgment on the grounds that the

claim is barred by the economic loss doctrine, that the claim is

barred by the statute of limitations, and that the claim fails

on the merits.

4 To the extent Sponge-Jet raises different arguments and theories in its reply, those may not be considered for purposes of deciding summary judgment. See Conway v. Licata, --- F. Supp. 3d ---,

(D. Mass. May 8, 2015); Phenix Mut. Fire Ins. Co. v. Stanley Convergent Sec. Solutions, Inc.,

, at *2 (D.N.H. July 30, 2013) (citing cases).

9 Although the New Hampshire Supreme Court has not addressed

the issue, other courts have concluded that New Hampshire would

recognize the tort of aiding and abetting breach of fiduciary

duty based on the Restatement (Second) of Torts § 876(b). See

Invest Almaz v. Temple-Inland Forest Prods. Corp.,

(1st Cir. 1994); Tamposi v. Denby,

, 61-

62 (D. Mass. 2013); In re Felt Mfg. Co., Inc.,

(Bankr. N.H. 2007). To succeed on that claim, a plaintiff must

prove three elements: breach of fiduciary obligations, knowing

inducement or participation in the breach by the defendant, and

damages to the plaintiff caused by the breach. Invest Almaz,

.

1. Economic Loss Doctrine

The economic loss doctrine is described by the New

Hampshire Supreme Court as “one of the most confusing doctrines

in tort law.” Wyle v. Lees,

(2011). When the

parties’ relationship is governed by a contract, the economic

loss doctrine precludes the plaintiff from bringing a tort claim

for purely economic losses arising from the contractual

relationship. Schaefer v. Indymac Mortg. Servs.,

(1st Cir. 2013) (citing Plourde Sand & Gravel Co. v. JGI

Eastern, Inc.,

(2007)). An exception exists,

however, if the defendant owes the plaintiff “an independent

10 duty of care outside the terms of the contract.” Wyle,

.

The distributor agreement governed the contractual

relationship between HayJo and Sponge-Jet. The tort HayJo

alleges is based on Sponge-Jet’s duty not to aid and abet

Malagon in breaching his fiduciary duty to HayJo.5 Sponge-Jet

does not show that duty is covered by the distributor

agreements. Therefore, Sponge-Jet has not shown that it is

entitled to summary judgment based on the economic loss

doctrine.

2. Timeliness

Under RSA 504:8, which governs tort actions brought under

New Hampshire law, HayJo had three years to bring its claim of

aiding and abetting breach of fiduciary duty. The action must

be brought “within 3 years of the act or omission complained of,

except that when the injury and its causal relationship to the

act or omission were not discovered and could not reasonably

5 Sponge-Jet concedes as much, stating: “Through its aiding and abetting claim, HayJo simply is trying to pursue Sponge-Jet for what it feels was disloyalty by its former employee, Mr. Malagon. The real subject of HayJo’s ire is Mr. Malagon, and whether he breached any fiduciary duty that he owed to HayJo is not properly the subject of litigation between Sponge-Jet and HayJo.” To the contrary, however, that is the basis for an aiding and abetting claim.

11 have been discovered at the time of the act or omission.”

The complaint in this case was filed on May 5, 2014.

Sponge-Jet contends that the three-year limitation period

began in 2010 when Hayek learned that Malagon was forming his

own company and was planning to leave HayJo. Sponge-Jet further

contends that HayJo should have investigated then to learn what

Malagon was doing and what he planned.

The act or omission complained of in this case is not just

Malagon’s breach of fiduciary duty but instead is Sponge-Jet’s

aiding and abetting in that breach. Sponge-Jet has not shown,

based on Hayek’s information about Malagon in 2010, that HayJo

knew or should have known of Sponge-Jet’s involvement with

Malagon at that time. In fact, Sponge-Jet provides no evidence

that it was involved then with Malagon for the purpose of

changing distributors.

The evidence provided by both parties for summary judgment

shows that Cavalieri, of Sponge-Jet, became involved with

Malagon and Andrade in the spring of 2011 for the purpose of

establishing them as the Sponge-Jet distributor instead of

HayJo. The relationship between Malagon and Sponge-Jet grew

from that time forward. Sponge-Jet has not shown based on

undisputed facts that HayJo knew or should have known of Sponge-

12 Jet’s efforts to engage Malagon to work on behalf of Sponge-Jet

before May of 2011.

3. Merits

Sponge-Jet contends that HayJo cannot prove the aiding and

abetting claim because it cannot show that Malagon owed a

fiduciary duty to HayJo, that Sponge-Jet knew of the duty, or

that Sponge-Jet gave substantial assistance or encouragement to

Malagon in breaching his fiduciary duty. Given Malagon’s

position at HayJo and his interactions with Sponge-Jet on

HayJo’s behalf, material disputed facts exist as to whether he

owed a fiduciary duty to HayJo and what Sponge-Jet knew about

his duty. Similarly, taken in the light most favorable to

HayJo, Cavalieri’s involvement with Malagon for the purpose of

giving Malagon and Andrade the Sponge-Jet distributorship could

show that he gave substantial assistance or encouragement to

Malagon’s breach of fiduciary duties.

Therefore, Sponge-Jet has not shown that it is entitled to

summary judgment on the aiding and abetting breach of fiduciary

duty claim.

D. Breach of the Implied Duty for Good Faith and Fair Dealing

Sponge-Jet seeks summary judgment on the grounds that the

implied duty cannot rewrite the distributor agreement to provide

13 new obligations and that the claim is vague and appears to seek

the same relief that is sought for breach of contract. In its

objection, HayJo clarifies that it intended to invoke the

implied duty that limits the discretion of a party in contract

performance.

Under New Hampshire law, the implied duty restricts a

party's exercise of discretion within “reasonable limits.”

Centronics Corp. v. Genicom Corp.,

(1989).

Therefore, when “the agreement ostensibly allow[s] to or

confer[s] upon the defendant a degree of discretion in

performance tantamount to a power to deprive the plaintiff of a

substantial proportion of the agreement's value,” the defendant

cannot exercise discretion in a manner that “exceed[s] the

limits of reasonableness.”

.

In this context, HayJo claims that the implied duty cabins

the discretion conferred by the contract for Sponge-Jet to

terminate. HayJo contends that Sponge-Jet terminated the

contract after Hayek, relying on the exclusive distributor

agreement, put efforts into developing the market in Mexico for

Sponge-Jet products. When those efforts were producing sales

that were becoming profitable, Sponge-Jet terminated the

agreement with HayJo to work with Malagon. Further, Hay Jo

contends, Sponge-Jet manipulated the termination to avoid paying

14 HayJo for sales made before termination. HayJo asserts that

Sponge-Jet’s actions under the agreement deprived HayJo of the

benefit of its efforts made pursuant to the agreement.

As such, HayJo asserts a claim under an implied duty theory

based on the discretion conferred by the distributor agreement.

The claim does not duplicate the breach of contract claim.

Conclusion

For the foregoing reasons, the defendant’s motion for

summary judgment as to the claims brought by Sami Hayek

(document no. 27) is terminated as moot. The motion for summary

judgment as to the claims brought by HayJo (document no. 28) is

granted as to Count Two, Unjust Enrichment, and is otherwise

denied.

SO ORDERED.

__________________________ Joseph DiClerico, Jr. United States District Judge

December 23, 2015

cc: Nicholas F. Casolaro, Esq. Peter E. Ferraro, Esq. Joshua William Gardner, Esq. Jeremy T. Walker, Esq.

15