RAINFOREST DISTRIBUTION CORP v. VYBES L.A. LLC

NOT FOR PUBLICATION

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

RAINFOREST DISTRIBUTION CORP.,

Plaintiff,

v.

VYBES L.A. LLC,

Defendant, Case No. 2:20-cv-00634 (BRM) (JSA)

OPINION

VYBES L.A. LLC,

Counterclaimant/Third-Party Plaintiff

v.

RAINFOREST DISTRIBUTION CORP. and

ALEXANDER RIDINGS, an individual,

Counterclaim Defendant/Third-Party

Defendant.

MARTINOTTI, DISTRICT JUDGE

Before this Court are two Motions: (1) Plaintiff1 Rainforest Distribution Corp.’s

(“Rainforest”) Motion (A) to Dismiss Defendant Vybes L.A. LLC’s (“Vybes”) counterclaims

pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), (B) to dismiss and/or strike the

1 With its Answer, Defendant Vybes filed a conflated “Counterclaim and Third-Party Complaint,”

asserting counterclaims against Plaintiff Rainforest and naming Alexander Ridings (“Ridings”) as

the third-party defendant. Consequently, the parties refer to Defendant Vybes as

“Counterclaimant/Third-Party Plaintiff” rather than Defendant. To be clear, Rainforest remains

the plaintiff against which Vybes has asserted counterclaims, and Ridings is a Third-Party

Defendant. The Court will refer to the parties by name rather than relationship to the claims.

Third-Party Complaint pursuant to Federal Rules of Civil Procedure 14(a)(4), 12(b)(6), and 9(b),

or (C) alternatively, to strike Vybes’s demands for relief pursuant to Federal Rules of Civil

Procedure 12(f) and 14(a)(4) (ECF No. 16); and (2) Ridings’ Motion to Dismiss and/or strike

Vybes’s Third-Party Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6), 9(b), and

14(a)(4), or alternatively, to strike Vybes’s demands for relief pursuant to Federal Rules of Civil

Procedure 12(f) and 14(a)(4) (ECF No. 18).2 Vybes opposed both motions (ECF No. 27) and

Rainforest replied (ECF No. 28). On July 14, 2020, the Court held oral argument in this matter.

(ECF No. 31.) Following oral argument, the Court administratively terminated the motions without

prejudice and directed the parties to engage in good faith settlement discussions. (See id.) On

November 24, 2020, Magistrate Judge Dickinson held a settlement conference (ECF No. 44), but

the parties were unable to reach a settlement (ECF No. 57). On December 16, 2020, the Court held

a status conference in which the parties were directed to file supplemental briefs. (ECF No. 46.)

On January 8, 2021, both parties submitted supplemental briefs (ECF Nos. 47, 48), and on January

11, 2021, the motions were reinstated (ECF Nos. 51, 52). Having reviewed the parties’ submissions

filed in connection with the Motions, for the reasons set forth below, and for good cause shown,

Rainforest’s and Ridings’ Motions to Dismiss are GRANTED.

I. BACKGROUND

For the purposes of the Motions to Dismiss, the Court accepts the factual allegations in the

Complaint as true and draws all inferences in the light most favorable to Plaintiffs. See Phillips v.

Cnty. of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008). Further, the Court also considers any

2 Ridings did not file a brief supporting his Motion to Dismiss, but “expressly adopts and

incorporates by reference” the arguments raised by Rainforest in its brief. (See ECF No. 18.)

Therefore, the Court will only refer to Rainforest’s brief in opposition (ECF No. 16-1) and its reply

(ECF No. 28) for the purposes of this Opinion.

“document integral to or explicitly relied upon in the complaint.”3 In re Burlington Coat Factory

Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997).

On or about November 5, 2019, Vybes and Rainforest entered into a supplier agreement

(the “Supplier Agreement”) in which “Vybes agreed to grant Rainforest the exclusive right to

distribute its products within a specified geographical territory that included New Jersey, New

York City, parts of Connecticut, and certain specific retail supermarkets.” (ECF No. 13 ¶¶ 8–9.)

The purpose of Supplier Agreement, as indicated in the Agreement’s recitals, was to “support[]

the growth of [Vybes’s] brand and products while reasonably protecting the financial, operational,

and reputational resources expended by Rainforest.” (Supplier Agreement, Ex. A. (ECF No. 1) at

1.) Section 3(A) of the Supplier Agreement provides, in relevant part “[e]xcept for Excluded

Accounts, [Vybes] appoints Rainforest as its exclusive distributor for the Products in the Territory

and Rainforest agrees to use commercially reasonable efforts to resell the Products in the

Territory.” (ECF No. 1, Ex. A ¶ 3A). Rainforest was also required, at all times, to “use its diligent

and good faith efforts to market, promote and expand the sale of Products in the Territory.” (Id. ¶

4A). Under the Supplier Agreement, Rainforest could terminate “at any time, with or without

cause, by providing [Vybes] with sixty (60) days advance written notice.” (Id. ¶ 9A). Vybes could

terminate “at any time, with or without cause, by providing Rainforest with sixty (60) days advance

written notice (a “Termination Notice”) and paying a termination fee (the “Termination Fee”),”

which was “due and owing within sixty (60) days of Rainforest’s receipt of a Termination Notice.”

(Id. ¶ 9B). The Termination Fee was “to be calculated on the basis of Rainforest’s net purchase of

Vybes’s products during the time period leading up to the termination notice.” (ECF No. 13 ¶ 13.)

3 The Supplier Agreement and Termination Agreement are both “integral” and “explicitly relied

upon in the complaint,” so the Court will consider them on the Motions to Dismiss.

During a meeting on or around June 4, 2019, Vybes provided Rainforest with notice of its intention

to terminate the Supplier Agreement. (Id. ¶ 14.) Between June 4, 2019, and August 7, 2019, Vybes

and Rainforest worked to transition the supply arrangement from Rainforest to Vybes’s new

supplier. (Id. ¶ 15.) And on August 7, 2019, the parties entered into a “Termination and Release

Agreement” under which Vybes agreed to pay a Termination Fee based on the formula set forth

in the Supplier Agreement. (Id.) Vybes alleges when it entered into the Termination and Release

Agreement, it “was unaware that Rainforest had breached the Supplier Agreement by fraudulently

manipulating its net purchases during the weeks leading up to the termination of the Supplier

Agreement . . . with the knowing and purposeful intent of manipulating the Termination Fee to its

advantage.” (Id. ¶ 16.) And before even entering into the Termination and Release Agreement,

Vybes alleges it learned “Rainforest had become aware of Vybes’s intention to terminate the

Supplier Agreement” and “began to manipulate its purchases of Vybes’s products in an effort to

maximize the Termination Fee.” (Id. ¶ 18.) Between April 2019 and June 2019, Vybes asserts

Rainforest ordered over $600,000 of its products, “more than double the amount of product [than]

it sold,” which induced Vybes “into entering an artificially inflated Termination and Release

Agreement containing a Termination Fee which far exceeded the amount to which Rainforest

would have been entitled.” (Id. ¶¶ 20–21.) In connection with these inflated orders, Vybes alleges

Alexander Ridings (“Ridings”), Rainforest’s CEO, made a series of misrepresentations “in an

attempt to coerce Vybes to deliver more product to Rainforest,” and “failed to disclose that

Rainforest was overordering.” (Id. ¶¶ 22–25.) According to Vybes, Ridings’ various

representations were false because Ridings “had no regard for Vybes’s interests or reputation,”

knew “that he was ordering more product than consumers would purchase, and that he intended to

dump Vybes’s product into the market,” which would then expire and require “Vybes to

repurchase the product” and incur substantial damages. (Id. ¶ 26.)

Under the Termination and Release Agreement, Vybes was “fraudulently induced to

forgive $92,596.50 in unpaid receivables owed by Rainforest” and had to pay “Rainforest an

additional $285,403.50 as a Termination Fee.” (Id. ¶ 29.) Vybes made the initial payment of

$47,567.25 due under the Termination and Release Agreement. (Id.) But following the execution

of the Termination and Release Agreement, Rainforest dumped the over-ordered product from

Vybes into the market, which then expired on retailers’ shelves and required Vybes to “pick up

and replace product at many locations in the New York City market.” (Id. ¶¶ 30–31.) Lastly,

“Rainforest’s inflated ordering during the April 2019 through June 2019 time period also caused

Vybes to overproduce its production runs in July and August 2019 because those production runs

were derived from its distributor’s ordering patterns,” which resulted in “excess perishable

inventory, freight charges, and warehousing expenses.” (Id. ¶ 34.)

Rainforest filed a complaint with this Court on January 17, 2020, alleging Vybes breached

the Termination Agreement between the parties (Count I); and requesting this Court enter

declaratory judgment on its breach of contract claim (Count II). (See ECF No. 1 ¶¶ 92–102.) On

March 12, 2020, Vybes answered Rainforest’s Complaint, asserted counterclaims against

Rainforest, and filed a Third-Party Complaint alleging Ridings. (See ECF No. 13.) Vybes’s

counterclaims alleged Rainforest breached the Supplier Agreement between the parties (Count I);

Rainforest breached the Implied Covenant of Good Faith and Fair Dealing (Count II); Rainforest

and Ridings fraudulently induced Vybes into entering the Termination and Release Agreement

and artificially inflated the Termination Fee (Count III). (ECF No. 13 ¶¶ 36–58.) On April 2, 2020,

Rainforest filed a Motion to Dismiss Vybes’s counterclaims (ECF No. 16), and on April 20, 2020,

Ridings also filed a Motion to Dismiss Vybes’s counterclaims, incorporating and adopting the

arguments set forth in Rainforest’s brief in support of its motion (ECF No. 18). On June 1, 2020,

Vybes opposed Rainforest’s and Ridings’ motions (ECF No. 27), and on June 22, 2020, Rainforest

replied (ECF No. 28). On July 14, 2020, the Court held oral argument. (ECF No. 31.) On December

16, 2020, this Court ordered the parties to submitted supplemental briefing regarding the motions.

(ECF No. 46.) On January 8, 2021, both parties submitted supplemental briefs. (ECF Nos. 47, 48.)

II. LEGAL STANDARD

“In evaluating the sufficiency of counterclaims, the Court employs the familiar Rule

12(b)(6) standard.” In re Invs. Warranty of Am., Inc. v. B.W.E. Dev., L.L.C., Civ. A. No. 09-4490,

2010 WL 2557559, at *2 (D.N.J. June 23, 2010). In deciding a motion to dismiss pursuant to

Federal Rule of Civil Procedure 12(b)(6), a district court is “required to accept as true all factual

allegations in the complaint and draw all inferences in the facts alleged in the light most favorable

to the [plaintiff].” Phillips, 515 F.3d at 228. “[A] complaint attacked by a . . . motion to dismiss

does not need detailed factual allegations.” Bell Atl. v. Twombly, 550 U.S. 544, 555 (2007).

However, the plaintiff’s “obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires

more than labels and conclusions, and a formulaic recitation of the elements of a cause of action

will not do.” Id. (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). A court is “not bound to

accept as true a legal conclusion couched as a factual allegation.” Papasan, 478 U.S. at 286.

Instead, assuming the factual allegations in the complaint are true, those “[f]actual allegations must

be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555.

“To survive a motion to dismiss, a complaint must contain sufficient factual matter,

accepted as true, to ‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556

U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 570). “A claim has facial plausibility when the

pleaded factual content allows the court to draw the reasonable inference that the defendant is

liable for misconduct alleged.” Id. This “plausibility standard” requires the complaint allege “more

than a sheer possibility that a defendant has acted unlawfully,” but it “is not akin to a ‘probability

requirement.’” Id. (quoting Twombly, 550 U.S. at 556). “Detailed factual allegations” are not

required, but “more than an unadorned, the defendant-unlawfully-harmed-me accusation” must be

pled; it must include “factual enhancements” and not just conclusory statements or a recitation of

the elements of a cause of action. Id. (citing Twombly, 550 U.S. at 555, 557).

“Determining whether a complaint states a plausible claim for relief [is] . . . a context-

specific task that requires the reviewing court to draw on its judicial experience and common

sense.” Iqbal, 556 U.S. at 679. “[W]here the well-pleaded facts do not permit the court to infer

more than the mere possibility of misconduct, the complaint has alleged—but it has not

‘show[n]’—‘that the pleader is entitled to relief.’” Id. at 679 (quoting Fed. R. Civ. P. 8(a)(2)).

While as a general rule, a court may not consider anything beyond the four corners of the

complaint on a motion to dismiss pursuant to 12(b)(6), the Third Circuit has held “a court may

consider certain narrowly defined types of material without converting the motion to dismiss [to

one for summary judgment pursuant under Rule 56].” In re Rockefeller Ctr. Props. Sec. Litig., 184

F.3d 280, 287 (3d Cir. 1999). Specifically, courts may consider any “document integral to or

explicitly relied upon in the complaint.” In re Burlington Coat Factory Sec. Litig., 114 F.3d at

1426.

III. DECISION

In its Motion to Dismiss, Rainforest makes four main arguments: (1) Vybes’s breach of

contract claims fail as a matter of law; (2) Vybes’s counterclaim for breach of the covenant of

good faith and fair dealing is duplicative of its breach of contract claim; (3) Vybes’s fraudulent

inducement claim fails as a matter of law; and (4) Vybes cannot pursue any claim against Ridings

personally. (See generally ECF No. 16-1.) Alternatively, if the Court finds any of Vybes’s claims

survive dismissal, Rainforest requests the Court strike “various types of relief improperly sought

by Vybes pursuant to Rule 12(f).” (Id. at 24.) The Court will address each argument in turn.

A. Vybes’s Breach of Contract Counterclaim (Count I)

As an initial matter, the Court must decide whether Vybes’s breach of contract claim should

be governed by New York or New Jersey law. The parties agree the breach of contract claim is

governed by New York law. (Compare ECF No. 16-1 at 10 (“New York law applies with respect

to Rainforest’s alleged breach of the Supplier Agreement”) with ECF No. 26 at 8 (reciting elements

of breach of contract claim under New York law).) Additionally, the Supplier Agreement’s choice

of law provision states New York law applies. (ECF No. 1, Ex. A ¶ 17 (“The Parties agree that this

agreement shall be governed by, construed, and enforced in accordance with the laws of the State

of New York excluding conflicts and choice of law provisions applicable under New York law.”).)

Because the parties have contractually agreed New York law governs, the court will uphold that

decision pursuant to New Jersey’s choice of law rules. See Collins On behalf of herself v. Mary

Kay, Inc., 874 F.3d 176, 183–84 (3d Cir. 2017) (“New Jersey choice-of-law rules provide that

‘[o]rdinarily, when parties to a contract have agreed to be governed by the laws of a particular

state, New Jersey courts will uphold the contractual choice.’” (quoting Instructional Sys., Inc. v.

Comput. Curriculum Corp., 614 A.2d 124, 133 (N.J. 1992))).

“To prevail on a breach of contract claim under New York Law, a plaintiff must prove (1)

a contract; (2) performance of the contract by one party; (3) breach by the other party; and (4)

damages.” Terwilliger v. Terwilliger, 206 F.3d 240, 246 (2d Cir. 2000) (internal quotation marks

omitted).

Rainforest argues the Supplier Agreement was expressly terminated and superseded by the

Termination Agreement, which means Vybes cannot sue for breach under the Supplier Agreement.

(ECF No. 16-1 at 11.) Vybes argues the Termination Agreement expressly released claims by

Rainforest and preserved claims by Vybes under the Supplier Agreement by not expressly

releasing those claims in the Termination Agreement. (ECF No. 26 at 11.) Paragraph 1 of the

Termination Agreement provides:

Notwithstanding anything to the contrary in the Supply Agreement,

the parties agree that the Supply Agreement terminated effective as

of the Effective Date, including the provisions of the Supply

Agreement that expressly survive such termination, as such terms

shall be superseded by the terms of the New Supply Agreement.

However, any underlying claims of [Rainforest] that may exist

under Supply Agreement prior to the Effective Date shall be

released pursuant to Section 4 below. [Rainforest] acknowledges

and agrees that as of the Effective Date, (i) all rights and privileges

of [Rainforest] under the Supply Agreement ceased and [Rainforest]

shall discontinue forever the sale of Products (as defined in the

Supply Agreement) and the use of the Trademarks (as defined in the

Supply Agreement) in the territory covered by such Supply

Agreement (the “Former Territory”) and (ii) [Rainforest] shall

immediately and forever discontinue the use of any signs,

advertising materials or other written matter of any kind whatsoever

relating to the Products and/or any Trademarks used in connection

with the Products or Vybes within the Former Territory. For the

avoidance of doubt, nothing herein requires [Rainforest] to cease

any distribution, sales or marketing activities related to the Products

or Vybes in the New Territory.

(Termination Agreement, Ex. C. (ECF No. 1) ¶ 1.) And Paragraph 4 of the Termination Agreement

states:

In consideration of the terms hereof, including, without limitation,

the Termination Payment [Rainforest] hereby unconditionally

releases Vybes and its past and present officers, directors, principals,

managers, members, affiliates, representatives and agents

(collectively, the “Released Parties”), and their respective

successors and assigns, of any and all claims of any kind whatsoever

that [Rainforest] has or may have from the beginning of time up to

the Effective Date, including, without limitation, those arising from

or in connection with the termination of the Supply Agreement.

[Rainforest] covenants and agrees that it shall not attempt to assert,

directly or indirectly, any action against Vybes, or any of the other

Released Parties, or any of their respective successors or assigns. In

the event that [Rainforest] breaches any of the promises set forth in

this Section 4, [Rainforest] shall pay, by way of indemnification, all

costs and expenses of the Released Parties incurred as a result of

such breach, including, without limitation, such Released Parties’

reasonable attorneys’ fees.

[Rainforest] understands and agrees that the claims released in this

Agreement include any and all claims of every nature and kind

whatsoever, known or unknown, suspected or unsuspected, which

[Rainforest] has or may have against Vybes and/or any of the

Released Parties under the Supply Agreement and termination

thereof, and [Rainforest] hereby waives any and all rights it may

have to assert such claims at a later date.

(Id. ¶ 4.)

Lastly, Paragraph 10 of the Termination Agreement declares “[t]his Agreement represents

the entire agreement between the parties with respect to the subject matter specified herein and

supersedes all prior agreements and understandings, whether written or oral, with respect to the

subject matter hereof.” (Id. ¶ 10.)

Based on Paragraphs 1 and 4, Vybes argues the Termination Agreement released claims

only by Rainforest and did not release any claims under the Supplier Agreement by Vybes. (ECF

No. 27 at 10.) Both parties cite to Napster, LLC v. Rounder Recs. Corp., 761 F. Supp. 2d 200

(S.D.N.Y. 2011) as support for their arguments. That case concerned breach of contract claims

brought by Napster against Rounder Records Corps. Id. at 202. Napster entered into contracts with

Rounder in 2001 and 2006. Id. The 2006 contract expressed the parties’ intent to terminate the

2001 contract. Id. at 203. Napster claimed Rounder breached the 2001 contract by refusing to

indemnify Napster for costs related to certain infringement actions it had litigated and settled. Id.

at 206. Rounder argued Napster’s breach of contract claims failed as a matter of law because “the

2006 Agreement expressly terminated and superseded the 2001 Agreement.” Id.

The Napster court noted “[u]nder clearly established New York law, ‘[o]nce an agreement

has been rescinded, there can be no claims based on the cancelled agreement unless the right to

make such claims is expressly or impliedly reserved within the terms of the rescission.’” Id.

(quoting Milan Music, Inc. v. Emmel Commc’ns Booking, Inc., 37 A.D.3d 206, 206 (N.Y. App.

Div. 2007)). Napster argued its claims for breach still applied because the 2006 Agreement “did

not specifically exclude the prior obligations.” Id. In rejecting this argument, the Napster court

clarified “[u]nless the claim of breach is specifically preserved, it is gone and must be judged solely

by the new contract.” Id. The Napster court further stated “[t]he presumption, in other words, is

that claims based on a rescinded contract do not survive the rescission.” Id. In sum, the Napster

court held “[s]ince the 2006 Agreement evinces—without ambiguity—Napster and Rounder’s

intent to rescind the 2001 Agreement, and does not indicate an intention to reserve claims based

on the 2001 Agreement, Napster is precluded—as a matter of law—from maintaining a claim for

breach of the 2001 Agreement.” Id. (citing Carvel Corp. v. Eisenberg, 692 F. Supp. 182, 184

(S.D.N.Y. 1988)).

In Napster, Napster only asserted “that it did not intend to extinguish claims based on the

2001 Agreement,” even though the language of the 2006 Agreement clearly stated the 2001

Agreement was terminated and superseded. Id. at 207. Here, Vybes argues its claims survive the

Termination Agreement because only Rainforest’s claims were specifically released, which means

Vybes claims were, at the very least, impliedly reserved. However, the Napster court requires

claims be specifically preserved to survive, and Vybes has not cited any case, nor has the Court

found any case, that supports the proposition that express release of one party’s claims impliedly

reserves the other party’s claims, especially when the agreement under which those claims are

brought is specifically superseded by a later agreement. And following the Napster court’s

declaration that claims alleging breach of a rescinded contract are presumptively barred by the

subsequently entered contract unless the claims of breach are “specifically reserved” in the

rescinded contract, Vybes claims of breach of the Supplier Agreement do not survive the

Termination Agreement. Id.; Penguin Grp. (USA) Inc. v. Steinbeck, 537 F.3d 193, 200 (2d Cir.

2008) (“Once terminated and superseded, the new contract provides all of the parties’ obligations

and remedies for breach.” (citing Northville Indus. Corp. v. Fort Neck Oil Terminals Corp., 100

A.D.2d 865, 867 (2d Dep’t 1984))); (ECF No. 1, Ex. C, ¶ 1 (“[T]he parties agree that the Supply

Agreement terminated effective as of the Effective Date, including the provisions of the Supply

Agreement that expressly survive such termination, as such terms shall be superseded by the terms

of the New Supply Agreement.”)); (ECF No. 1, Ex. C, ¶ 10 (stating that the Termination

Agreement “represents the entire agreement between the parties with respect to the subject matter

specified herein and supersedes all prior agreements and understandings”)).

Even if Vybes’s claims under the Supplier Agreement were reserved by the Termination

Agreement, Vybes has not adequately pled a claim for breach of contract under the Supplier

Agreement. “Under New York law, the elements of a breach of contract claim are (1) the existence

of an agreement; (2) adequate performance of the contract by the plaintiff; (3) breach of contract

by the defendant; and (4) damages.” Swan Media Grp., Inc. v. Staub, 841 F. Supp. 2d 804, 807

(S.D.N.Y. 2012) (citing Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co., 375 F.3d

168, 177 (2d Cir. 2004)). The element at issue here is breach, as the parties dispute whether

Rainforest’s alleged over-ordering gives rise to a claim under the Supplier Agreement. At the

motion to dismiss stage, “the Court may dismiss a breach of contract claim for failure to state a

claim if the ‘plain language’ of the contract contradicts or fails to support the plaintiff’s allegations

of breach.” Perks v. TD Bank, N.A., 444 F. Supp. 3d 635, 639 (S.D.N.Y. 2020) (quoting Orchard

Hill Master Fund Ltd. v. SBA Commc’ns Corp., 830 F.3d 152, 156–58 (2d Cir. 2016)).

Under the Supplier Agreement, Rainforest agreed to support the growth of Vybes’s brands

and products, use “commercially reasonably efforts to resell” Vybes’s products within the

geographic territory specified by the Supplier Agreement, and use “diligent and good faith4 efforts

to market, promote, and expand” the sale of Vybes’s products. (See ECF No. 1, Ex. A at 1, ¶¶ 3A,

4.) Vybes alleges “Rainforest breached its obligations and promises set forth under the Supplier

Agreement by . . . knowingly and purposefully manipulating its purchases of Vybes’s products in

order to artificially inflate the Termination Fee at the expense of Vybes’s interests.” (ECF No. 13

¶ 38.) Additionally, Vybes asserts Rainforest materially breached the Supplier Agreement “by

failing to order product with the purpose of supporting Vybes,” which “caused additional damages

to Vybes relating to overproduction, expiring product and other damage to Vybes’s goodwill and

reputation.” (Id. ¶¶ 39–40.) That is, Vybes’s main allegation for breach under the Supplier

Agreement is that Rainforest over-ordered product that it did not sell, which resulted in an

increased Termination Fee, expired products, and other damages. (See id.; see also id. ¶ 20

(“Altogether, Rainforest ordered over $600,000 of Vybes’s products between April 2019 and June

2019, more than double the amount of product that it sold.”).) The Supplier Agreement does not

obligate Rainforest, as the distributor, to guarantee certain sales of Vybes’s products. Instead, in

4 The Court notes that good faith determinations include issues of fact not appropriate for

determination at the motion to dismiss stage. See Rockland County Sheriff’s Deputies Ass’n v.

Grant, 670 F. Supp. 566, 568 (S.D.N.Y. 1987) (claims that “typically turn on issues of fact

concerning good faith or intent . . . [are] usually unsuited for summary judgment”). However, the

parties did not raise these issues and any claims under the Supplier Agreement are clearly barred

by the superseding Termination Agreement.

entering the Supplier Agreement, Vybes agreed “that Rainforest does not guarantee the purchase

or performance level of any retailer.” (ECF No. 1, Ex. A ¶ 4G.) That is, the parties specifically

contracted that Rainforest would not be responsible for lost sales Vybes incurred. (See id.)

Additionally, Vybes’s claim that it incurred damages as a result of expired products is also covered

by the Supplier Agreement, which states Vybes “shall replace, at its own expense, all Products

which are spoiled, damaged or otherwise do not meet the requirements of the Agreement” and

Vybes “releases Rainforest from any liability resulting from any type of damage or spoilage to any

Products not purchased by Rainforest.” (ECF No. 1, Ex. A ¶¶ 5C, 4H.) Therefore, even if Vybes’s

breach of contract claims were not barred by the superseding Termination Agreement, Vybes

cannot state a claim because the Supplier Agreement “contradicts . . . [Vybes’s] allegations of

breach.” Perks, 444 F. Supp. 3d at 639. Accordingly, Count I of Vybes’s Counterclaim against

Rainforest is DISMISSED.

B. Vybes’s Counterclaim for Breach of the Implied Covenant of Good Faith and

Fair Dealing (Count II)

Rainforest argues Vybes’s claim alleging breach of the implied covenant of good faith and

fair dealing should be dismissed because it is duplicative of its breach of contract counterclaim.

(ECF No. 16-1 at 15.) Vybes asserts the two claims are not duplicative of each other. (ECF No. 26

at 14.)

“Under New York law, all contracts contain an implied covenant of good faith and fair

dealing in the course of performance.” Gillespie v. St. Regis Residence Club, 343 F. Supp. 3d 332,

341 (S.D.N.Y. 2018) (citations omitted). “[T]o state a claim for breach of the implied covenant of

good faith and fair dealing, ‘the plaintiff must allege facts which tend to show that the defendant

sought to prevent performance of the contract or to withhold its benefits from the plaintiff.’” Tonra

v. Kadmon Holdings, Inc., 405 F. Supp. 3d 576, 585–86 (S.D.N.Y. 2019) (quoting Aventine Inv.

Mgmt., Inc. v. Canadian Imperial Bank of Commerce, 265 A.D.2d 513, 697 (N.Y. App. Div.

1999)). “Generally, under New York law, a cause of action alleging breach of the implied covenant

is duplicative of a cause of action alleging breach of contract.” Rojas v. Don King Prods., Inc., Civ

A. No. 11-8468, 2012 WL 760336, at *3 (S.D.N.Y. Mar. 6, 2012) (citations omitted). A claim for

breach of the implied covenant of good faith may “survive a motion to dismiss only ‘if it is based

on allegations different than those underlying the accompanying breach of contract claim’ and if

the relief sought is not ‘intrinsically tied to the damages allegedly resulting from the breach of

contract.’” In re Refco Inc. Sec. Litig., 826 F. Supp. 2d 478, 496 (S.D.N.Y. 2011) (quoting ARI &

Co., Inc. v. Regent Intern. Corp., 273 F. Supp. 2d 518, 521–22 (S.D.N.Y.2003)).

Vybes’s breach of contract claim alleges Rainforest breached its obligations to support

Vybes’s growth, use commercially reasonable efforts to resell Vybes’s products, and use good

faith efforts to promote and expand Vybes’s product sales by “knowingly and purposefully

manipulating its purchases of Vybes’s products in order to artificially inflate the Termination Fee

at the expense of Vybes’s interests.” (ECF No. 13 ¶¶ 38–39.) Similarly, Vybes’s claim for breach

of the implied covenant of good faith and fair dealing alleges “Rainforest breached its obligation

to engage in good faith and fair dealing by knowingly and purposefully manipulating its purchases

of Vybes’s products in order to artificially inflate the Termination Fee at the expense of Vybes’s

interests.” (Id. ¶ 45.) That is, the alleged breach in both claims is that Rainforest manipulated its

purchases of Vybes’s products to inflate the Termination Fee. Because Vybes’s claim for breach

of the implied covenant of good faith is based on the same allegations as those underlying its

breach of contract claim, dismissal is proper on that basis alone. See Ruiz v. Liberty Mut. Fire Ins.

Co., Civ. A. No. 19-4399, 2019 WL 7293377, at *2 (S.D.N.Y. Dec. 30, 2019) (“Under New York

law, ‘courts do not recognize a distinct claim for breach of the implied covenant of good faith and

fair dealing when it is premised upon the same facts as a breach of contract claim.’” (quoting

Clement v. Farmington Cas. Co., Civ. A. No. 13-1026, 2015 WL 6971565, at *6 (S.D.N.Y. Nov.

10, 2015))).

Furthermore, Vybes’s breach of contract claim alleges Rainforest’s breaches “caused

additional damages to Vybes relating to overproduction, expiring product and other damage to

Vybes’s goodwill and reputation.” (Id. ¶ 40.) Similarly, Vybes alleges “Rainforest’s breach of the

implied covenant of good faith and fair dealing caused additional damages to Vybes relating to

overproduction, expiring product and other damage to Vybes’s goodwill and reputation.” (Id. ¶

46.) In relation to both of these claims, Vybes alleges it “is entitled to recover damages from

Rainforest.” (Id. ¶¶ 41, 48.) Therefore, dismissal is also proper because Vybes’s breach of the

implied covenant of good faith claim seeks to recover the same damages it seeks to recover under

its breach of contract claim. See ARI & Co., 273 F. Supp. 2d at 523 (“Under New York law, claims

for breach of the implied covenant of good faith which seek to recover damages that are

intrinsically tied to the damages allegedly resulting from the breach of contract must be dismissed

as redundant.”). Accordingly, Count II of Vybes’s Counterclaim against Rainforest is

DISMISSED.

C. Vybes’s Counterclaim for Fraudulent Inducement against Rainforest and

Ridings

The Court must first determine the law applicable on Vybes’s fraudulent inducement

counterclaim, as the parties dispute which state’s law applies. Rainforest argues Vybes’s claims

are governed by New York law pursuant to the Supplier Agreement’s choice of law provision.

(ECF No. 16-1 at 16–17.) Vybes argues the Court “must apply the choice of law rules for New

Jersey as New Jersey is the forum in which the case was brought.” (ECF No. 26 at 17.)

“Under New York law, a choice-of-law provision indicating that the contract will be

governed by a certain body of law does not dispositively determine that law which will govern a

claim of fraud arising incident to the contract.” Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996)

(citing Plymack v. Copley Pharm., Inc., Civ. A. No. 93-2655, 1995 WL 606272, at *5 (S.D.N.Y.

1995)). Additionally, “in order for a choice-of-law provision to apply to claims for tort arising

incident to the contract, the express language of the provision must be ‘sufficiently broad’ as to

encompass the entire relationship between the contracting parties.” Id. (quoting Turtur v.

Rothschild Registry Int’l, Inc., 26 F.3d 304, 309–10 (2d Cir. 1994)). Here, the Supplier Agreement

provides that it “shall be governed by, construed, and enforced in accordance with the laws of the

State of New York.” (ECF No. 1, Ex. A ¶ 17.) In Krock, the Second Circuit found a choice-of-law

provision that stated the agreement before it “shall be governed and construed in accordance with

the laws of the Commonwealth of Massachusetts,” a nearly identical provision to the choice-of-

law provision in the Supplier Agreement, could not “be read broadly enough to apply to fraudulent

misrepresentation.” 97 F.3d at 645. Therefore, Vybes’s fraudulent inducement claim is not

governed by the Supplier Agreement’s choice-of-law provision.

When a claim is not specifically governed by a choice-of-law provision, a federal court

sitting in diversity, as this Court does here5, “determines the substantive law to be applied by

looking to the choice of law rules of the forum state.” Freedom Waste Sols., Inc. v. Fam. Dollar,

Civ. A. No. 15-4756, 2015 WL 5996183, at *2 (D.N.J. Oct. 14, 2015) (citing Klaxon Co. v. Stentor

Elec. Mfg. Co., 313 U.S. 487, 496–97 (1941)). Under New Jersey choice of law rules, a court

5 Rainforest’s Complaint alleges this Court has diversity jurisdiction. (See ECF No. 1 ¶ 5 (“This

Court has subject-matter jurisdiction to hear this matter pursuant to 28 U.S.C. § 1332(a) because

Rainforest and Vybes are citizens of different states and the amount in controversy exceeds

$75,000.”).) Vybes’s Counterclaim and Third-Party Complaint allege the same. (ECF No. 13 ¶ 3.)

“must first establish whether there is an actual conflict.” Lebegern v. Forman, 471 F.3d 424, 429

(3d Cir. 2006). “Under New Jersey law, a fraudulent inducement claim comprises five elements:

(1) a material representation of a presently existing or past fact; (2) made with knowledge of its

falsity; (3) with the intention that the other party rely thereon; (4) resulting in reliance by that party;

(5) to his detriment.” CDK Glob., LLC v. Tulley Auto. Grp., Inc., Civ. A. No. 15-3103, 2016 WL

1718100, at *3 (D.N.J. Apr. 29, 2016) (citing Metex Mfg. Corp. v. Manson, Civ. A. No. 05-2948,

2008 WL 877870, at *4 (D.N.J. Mar. 28, 2008)). And under New York law “a plaintiff must show

that (1) the defendant made a material false representation, (2) the defendant intended to defraud

the plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff

suffered damage as a result of such reliance.” Banque Arabe et Internationale D’Investissement v.

Md. Nat. Bank, 57 F.3d 146, 153 (2d Cir. 1995)). The Court concludes there is no conflict between

New York and New Jersey’s approach to fraud claims. Tarzy v. Dwyer, Civ. A. No. 18-1456, 2019

WL 132280, at *9 (S.D.N.Y. Jan. 8, 2019) (holding “there is no material difference between New

Jersey and New York law governing fraud claims”); G-I Holdings, Inc. v. Baron & Budd, 179 F.

Supp. 2d 233, 250 (S.D.N.Y. 2001) (finding no material difference between New York and New

Jersey law with respect to fraudulent inducement claim); Kaplan v. GreenPoint Glob., Civ. A. No.

11-4854, 2012 WL 2992572, at *6 (D.N.J. July 20, 2012) (finding “[n]o conflict exists between

New Jersey and New York’s laws governing common law fraud” and applying New Jersey law).

Notably, Rainforest does not argue New Jersey and New York’s approach to fraudulent

inducement claims are materially different. (ECF No. 16-1 (“As New York and New Jersey law

are materially aligned with respect to fraud, the Court may practically apply the law of either

state.”). Therefore, because there is no conflict, the court will apply New Jersey law to Vybes’s

claim for fraudulent inducement. P.V. ex rel. T.V. v. Camp Jaycee, 962 A.2d 453, 460 (N.J. 2008)

(noting if there is no distinction between the laws of two states, “there is no choice-of-law issue to

be resolved” (citing Rowe v. Hoffman–La Roche, Inc., 917 A.2d 767, 771 (N.J. 2007))).

As discussed, to state a claim for fraudulent inducement “a plaintiff must allege (1) a

material misrepresentation of fact; (2) knowledge or belief by the defendant of its falsity; (3)

intention that the other person rely on it; (4) reasonable reliance thereon by the other person; and

(5) resulting damage.” Frederico v. Home Depot, 507 F.3d 188, 200 (3d Cir. 2007); see also J.H.

Reid Gen. Contractor v. Conmaco/Rector, L.P., Civ. A. No. 08-6034, 2010 WL 398486, at *6

(D.N.J. Jan. 27, 2010). “Pursuant to Rule 9(b), a plaintiff alleging fraud must state the

circumstances of the alleged fraud with sufficient particularity to place the defendant on notice of

the ‘precise misconduct with which [it is] charged.’” Frederico, 507 F.3d at 200 (quoting Lum v.

Bank of Am., 361 F.3d 217, 223–24 (3d Cir. 2004)). Rule 9(b), which provides “[i]n alleging fraud

or mistake, a party must state with particularity the circumstances constituting fraud or mistake.

Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.”

Fed. R. Civ. P. 9(b). However, as the Supreme Court has stated,

‘generally’ is a relative term. In the context of Rule 9, it is to be

compared to the particularity requirement applicable to fraud or

mistake. Rule 9 merely excuses a party from pleading

discriminatory intent under an elevated pleading standard. It does

not give him license to evade the less rigid—though still operative—

strictures of Rule 8. And Rule 8 does not empower respondent to

plead the bare elements of his cause of action, affix the label

“general allegation,” and expect his complaint to survive a motion

to dismiss.

Iqbal, 556 U.S. at 686–87 (internal citations omitted).

The Third Circuit has taught, in applying Rule 9(b), “focusing exclusively on its

‘particularity’ language ‘is too narrow an approach and fails to take account of the general

simplicity and flexibility contemplated by the rules.’” Christidis v. First Pennsylvania Mortg. Tr.,

717 F.2d 96, 100 (3d Cir. 1983) (quoting 5 C. Wright & A. Miller, Federal Practice and Procedure

§ 1298, at 407 (1969)). “To satisfy this standard, the plaintiff must plead or allege the date, time

and place of the alleged fraud or otherwise inject precision or some measure of substantiation into

a fraud allegation.” Frederico, 507 F.3d at 200 (citing Lum, 361 F.2d at 224).

As an initial matter, Rainforest argues Vybes’s fraudulent inducement claim is barred by

the economic loss doctrine. (ECF No. 16-1 at 17–18.) Vybes asserts Ridings induced it into

entering the Termination Agreement and Rainforest over-ordered product which “mispresented

demand in the marketplace and had nothing to do with the contractual obligations of the parties

under the Termination Agreement.” (ECF No. 27 at 19.) “The economic loss doctrine prohibits

plaintiffs from recovering in tort economic losses to which their entitlement only flows from a

contract.” Chen v. HD Dimension, Corp., Civ. A. No. 10-863, 2010 WL 4721514, at *8 (D.N.J.

Nov. 15, 2010) (citing Bracco Diagnostics, Inc. v. Bergen Brunswig Drug Co., 226 F.Supp.2d 557,

562 (D.N.J. 2002)); Atlas Acquisitions, LLC v. Porania, LLC, Civ. A. No. 18-17524, 2019 WL

6130774, at *3 (D.N.J. Nov. 19, 2019) (“Under New Jersey law, a plaintiff typically may not

recover in tort for damages caused by a breach of contract . . . .”). “Fraud claims can proceed

alongside breach of contract claims where there exists fraud in the inducement of a contract or an

analogous situation based on pre-contractual misrepresentations.” RNC Sys., Inc. v. Mod. Tech.

Grp., Inc., 861 F. Supp. 2d 436, 451 (D.N.J. 2012) (quoting Barton v. RCI, LLC, Civ. A. No. 10–

3657, 2011 WL 3022238, *7 (D.N.J. July 22, 2011)). “Generally, fraud claims that are extrinsic to

the underlying contract, and consequently not barred under the economic loss doctrine, are claims

for fraudulent inducement.” Touristic Enters. Co. v. Trane Inc., Civ. A. No. 09-02732, 2009 WL

3818087, at *2 (D.N.J. Nov. 13, 2009) (citations omitted). “[T]he ‘critical issue’ with regard to

economic loss ‘is whether the allegedly tortious conduct is extraneous to the contract.’” Bracco

Diagnostics, Inc., 226 F. Supp. 2d at 564 (quoting Emerson Radio Corp. v. Orion Sales, Inc., Civ.

A. No. 95-6455, 2000 WL 49361, at *7 (D.N.J. Jan. 10, 2000), aff’d, 253 F.3d 159 (3d Cir. 2001)).

That is, “[i]f a plaintiff asserts that a defendant breached a duty owed to the plaintiff that is

independent of the duties that arose under the contract, the economic loss doctrine does not apply.”

Atlas Acquisitions, LLC v. Porania, LLC, Civ. A. No. 18-17524, 2019 WL 6130774, at *3 (D.N.J.

Nov. 19, 2019) (citing Montclair State Univ. v. Oracle USA, Inc., Civ. A. No. 11-2867, 2012 WL

3647427, at *5–6 (D.N.J. Aug. 23, 2012)).

Here, Vybes does not plead Rainforest breached duties independent of those arising under

its breach of contract claim, so its fraudulent inducement claim is barred by the economic loss

doctrine. Vybes alleges “Rainforest and Ridings fraudulently induced Vybes into entering the

Termination and Release Agreement by knowingly and purposefully manipulating its purchases

of Vybes’s products in order to artificially inflate the Termination Fee at the expense of Vybes’s

interests.” (ECF No. 13 ¶ 50.) Vybes further alleges “Rainforest and Ridings had intentionally

manipulated Rainforest’s purchases with the intent to defraud Vybes. Rainforest and Ridings did

this because they had advanced knowledge that Vybes would be terminating the Supplier

Agreement and wanted to disproportionately capitalize on the Termination Fee provision in the

Supplier Agreement.” (Id. ¶ 54.) At its core, the alleged conduct underlying Vybes’s claim for

fraudulent inducement is that Rainforest and Ridings over-ordered Vybes’s product to inflate the

Termination Fee Vybes owed Rainforest. This same alleged conduct forms the basis of Vybes’s

breach of contract claim. (Id. ¶ 38 (“Rainforest breached its obligations and promises set forth

under the Supplier Agreement by . . . knowingly and purposefully manipulating its purchases of

Vybes’s products in order to artificially inflate the Termination Fee at the expense of Vybes’s

interests.”).) Vybes alleges this conduct breached the Supplier Agreement, because “[p]ursuant to

the Supplier Agreement, Rainforest agreed to support the growth of Vybes’s brands and products,

use commercially reasonable efforts to resell Vybes’s products, and to at all times use its diligent

and good faith efforts to market, promote and expand the sales of Vybes’s products.” (Id. ¶ 37.)

That is, the alleged misrepresentations made by Rainforest and Ridings relate to its duties under

the Supplier Agreement, because Vybes alleges Rainforest fraudulently induced Vybes into

entering the Termination Agreement by breaching the Supplier Agreement. (See ECF No. 1, Ex.

A at 1 “[T]he spirit of this Agreement supports the growth of [Vybes’s] brands and products while

reasonably protecting the financial, operational and reputational resources expended by Rainforest

during this process.”) Therefore, Vybes’s claim for fraudulent inducement is barred by the

economic loss doctrine. See Cioni v. Globe Specialty Metals, Inc., 618 F. App’x 42, 47 (3d Cir.

2015) (“Because Cioni’s argument is, in essence, that Appelbaum promised Globe would grant

options when Globe would not—the very same promise that Globe contracted to perform—Cioni’s

claims are barred by the economic loss doctrine.” (citing Spring Motors Distribs., Inc. v. Ford

Motor Co., 489 A.2d 660, 672–73 (N.J. 1985))); Atlas Acquisitions, LLC, 2019 WL 6130774, at

*3 (barring claim for fraudulent inducement based on the economic loss doctrine because the

allegations that formed the basis of fraudulent inducement were not extraneous to the contract at

issue); Chen, 2010 WL 4721514, at *9 (“Clearly, Plaintiff alleges that Defendants breached the

Agreement, and did so in a fraudulent fashion. Nonetheless, a claim of common law fraud that is

intrinsic to the underlying agreement, as is the case here, is barred by the economic loss

doctrine.”).6

6 Vybes additionally argues the economic loss doctrine does not bar its claims because the doctrine

only applies “where the remedy sought is economic in nature.” (ECF No. 27 at 19.) Because Vybes

demands judgment under its fraudulent inducement claim for compensatory damages,

consequential damages, punitive damages, and declaratory relief, Vybes submits it does not seek

claims for economic loss. (See id.) The economic loss doctrine “bars a plaintiff from recovering

Even if Vybes’s claim was not barred by the economic loss doctrine, its fraudulent

inducement claim would still fail for lack of specificity. The parties only dispute whether Vybes

adequately pled two elements: knowledge of falsity and reasonable reliance. (ECF No. 16-1 at 20–

22; ECF No. 27 at 23–24.) However, failure to adequately plead any one of the elements of a

fraudulent inducement claim provides a basis for dismissal.

Regarding the knowledge of falsity element, Vybes alleges “Rainforest and Ridings knew

that their actions and representations were false and misleading at the time they were made” and

Rainforest and Ridings manipulated Rainforest’s purchases of Vybes’s products because “they had

advanced knowledge that Vybes would be terminating the Supplier Agreement and wanted to

disproportionately capitalize on the Termination Fee in the Supplier Agreement.” (ECF No. 13 ¶¶

51, 54.) That is, because “Rainforest had become aware of Vybes’s intention to terminate the

Supplier Agreement sometime during the months leading up to the June 4, 2019 termination

notice,” Rainforest was able to “manipulate its purchases of Vybes’s products in an effort to

purely economic losses suffered as a result of a defendant’s negligent or otherwise tortious

behavior, absent proof that the defendant’s conduct caused actual physical harm to a plaintiff or

his property.” Pub. Serv. Enter. Grp., Inc. v. Phila. Elec. Co., 722 F. Supp. 184, 193 (D.N.J. 1989);

Schenker, Inc. v. Expeditors Int’l of Washington, Inc., Civ. A. No. 3555-14T1, 2016 WL 3563187,

at *1 (N.J. Super. Ct. App. Div. July 1, 2016) (“The doctrine ‘bars tort remedies in strict liability

or negligence when the only claim is for’ economic loss, as opposed to physical injury or property

damage.” (citations omitted)). This bar applies to Vybes’s claims. First, Vybes’s claims for

compensatory and consequential damages qualify as economic loss. Spring Motors Distribs., Inc.

v. Ford Motor Co., 489 A.2d 660, 665 (N.J. 1985) (“Economic loss can take the form of either

direct or consequential damages.”). Second, Vybes’s other claims for damages can be similarly

characterized as economic loss because they do not involve physical injury or property damage.

Phila. Elec. Co., 722 F. Supp. at 193 n.4 (“In essence, economic losses are all pecuniary damages

not resulting from physical harm or property damage . . . .”); Sibeto v. Capella Univ., Civ. A. No.

13-1674, 2014 WL 3547347, at *8 (W.D. Pa. June 13, 2014), report and recommendation adopted

as modified, Civ. A. No. 13-1674, 2014 WL 3547344 (W.D. Pa. July 17, 2014) (applying Third

Circuit law and finding plaintiff’s fraud claims barred by the economic loss doctrine because her

demands for compensatory damages, punitive damages, and attorney’s fees “resulted only in

economic loss” as the claims “did not arise out of physical injury or property damage”).

maximize the Termination Fee.” (Id. ¶ 18.) Vybes supports this contention by asserting Rainforest

began over-ordering Vybes’s products in April 2019, before the June 4, 2019 termination notice.

(Id. ¶ 19.) But Vybes does not specifically allege how or when Rainforest or Ridings knew that

Vybes intended to terminate the Supplier Agreement before Vybes gave Rainforest notice of its

intent to terminate on June 4, 2019. See Frederico, 507 F.3d at 200. Federal Rule of Civil

Procedure 9(b) provides “malice, intent, knowledge, and other conditions of a person’s mind may

be alleged generally.” Fed. R. Civ. P. 9(b). However, “[a]lthough Rule 9(b) excuses parties from

pleading ‘conditions of a person’s mind’ under the heightened pleading standard required for fraud

claims, ‘[i]t does not give [them] license to evade the less rigid—though still operative—strictures

of Rule 8.’” Mitsui Foods, Inc. v. Synergie Canada, Inc., Civ. A. No. 19-14478, 2020 WL 468337,

at *2 (D.N.J. Jan. 28, 2020) (quoting Iqbal, 556 U.S. at 686–87). The facts underlying Vybes’s

fraudulent inducement claim establish that Rainforest ordered “more products than it could sell”

starting in April 2019 before Vybes provided Rainforest with notice to terminate the Supplier

Agreement on June 4, 2019, but they do not specifically allege how or when Rainforest knew of

Vybes’s intent to terminate before that notice so that it could “manipulate its purchases of Vybes’s

products” to increase the Termination Fee. (ECF No. 13 ¶¶ 18, 19.) Such allegations are

insufficient when the claim for fraud, like Vybes’s fraudulent inducement claim here, is based on

misrepresentations. In re Great Atl. & Pac. Tea Co., Inc. Sec. Litig., 103 F. App’x 465, 469 (3d

Cir. 2004) (“When the alleged fraud is based on misrepresentation or false statements, however, it

is not enough to merely allege that defendants knew or must have known that their statements were

false.” (citing GSC Partners CDO Fund v. Washington, 368 F.3d 228, 239 (3d Cir. 2004))).

Because Vybes has not alleged the “who, what, when, where and how” of the events giving rise to

Rainforest’s and Riding’s alleged fraudulent inducement, Vybes has not properly stated a claim.

In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1422. Accordingly, Count III of Vybes’s

Counterclaim against Rainforest and Ridings is DISMISSED.7

Vybes also filed a Third-Party Complaint against Ridings, seeking to find him personally

liable for Rainforest’s alleged fraudulent conduct. Vybes alleges, upon information and belief, that

“Rainforest is a mere legal instrumentality of Ridings” and “Ridings controls all of the operations

of Rainforest and dominates the entity.” (ECF No. 13 ¶ 3.) Vybes also argues Ridings is personally

liable for his participation in Rainforest’s fraudulent inducement of Vybes. (ECF No. 27 at 25;

ECF No. 13 ¶¶ 49–58.) Rainforest argues this veil-piercing claim fails because Vybes has not

alleged any of the requisite factors to survive dismissal. (ECF No. 16-1 at 23–34.) Vybes argues

Rainforest misconstrues its theory of liability against Ridings because Vybes seeks personal

7 In relation to its breach of contract claim, Vybes argues the Termination Agreement should be

deemed invalid due to Rainforest’s and Riding’s fraudulent conduct. (ECF No. 26 at 12.) Vybes

argues Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Turtur, 892 F.2d 199 (2d Cir. 1989) and

Petra Mezzanine Fund, L.P. v. Willis, Civ. A. No. 12-00601, 2012 WL 5382944 (D. Del. Nov. 1,

2012) dictate a finding in its favor. Neither case is helpful to Vybes here. Turtur addressed whether

one contract induced by fraud could render another contract executed as part of the same exchange

unenforceable. 892 F.2d at 203. Because the Turtur court found issues of fact existed as to whether

the parties intended the two contracts at issue were interdependent, the court denied summary

judgment. See id. at 204. Here, Vybes does not argue that the Supplier Agreement and Termination

Agreement were interdependent such that a fact finder would be required to determine the parties

intent—Vybes only argues the Termination Agreement should be deemed invalid due to

Rainforest’s and Ridings’ allegedly fraudulent conduct. Because Vybes has not raised this

argument, the court need not consider it. Glidepath Holding v. Spherion Corp., 590 F. Supp. 2d

435, 459 n. 9 (S.D.N.Y. 2007) (“[T]he Court has no obligation to consider an argument for which

a party has cited no legal authority.”). Additionally, the court in Petra found a claim for fraudulent

inducement could proceed under a subsequent agreement between the parties only after finding

the allegations underlying that claim met the heightened pleading standards of Rule 9(b). 2012 WL

5382944, at *2. Here, because the Court has found Vybes has not met Rule 9(b)’s heightened

pleading standard for its fraudulent inducement claim, the Termination Agreement cannot be

nullified on that basis.

liability based on the “tort participation theory” and not a veil-piercing claim. (ECF No. 27 at 25–

27.)

Under New Jersey law, a plaintiff must demonstrate two elements to pierce the corporate

veil: “First, there must be such unity of interest and ownership that the separate personalities of

the corporation and the individual no longer exist. Second, the circumstances must indicate that

adherence to the fiction of separate corporate existence would sanction a fraud or promote

injustice.” The Mall at IV Grp. Properties, LLC v. Roberts, Civ. A No. 02-4692, 2005 WL

3338369, at *3 (D.N.J. Dec. 8, 2005) (citations and quotations omitted). Vybes has not come close

to alleging either of these elements (see generally ECF No. 13), so the Court will not construe

Vybes’s theory of personal liability against Ridings as arising from a veil-piercing claim, as

Rainforest suggests. Instead, the Court will determine whether Ridings can be held personally

liable under the tort participation theory.

“[T]he essence of the participation theory is that a corporate officer can be held personally

liable for a tort committed by the corporation when he or she is sufficiently involved in the

commission of the tort.” Saltiel v. GSI Consultants, Inc., 788 A.2d 268, 272 (N.J. 2002). A

“majority” of New Jersey cases applying the tort participation theory “have involved intentional

torts” like “fraud and conversion.” Id. However, a plaintiff seeking personal liability of an officer

must still sufficiently allege the underlying intentional conduct. See G & F Graphic Servs., Inc. v.

Graphic Innovators, Inc., 18 F. Supp. 3d 583, 588 (D.N.J. 2014) (holding officer personally liable

for statutory and common law fraud claims after finding both claims were properly alleged); Bell

Container Corp. v. Palagonia Bakery Co. Inc., Civ. A. No. 19-6545, 2019 WL 8105297, at *5

(D.N.J. Dec. 26, 2019) (allowing fraudulent inducement claim to proceed after finding it was not

barred by the economic loss doctrine and sufficiently alleged personal liability based on the tort

participation theory). The Court has already found Vybes’s fraudulent inducement claim, alleged

against Rainforest and Ridings, barred by the economic loss doctrine and fails to state a claim

under Rule 9(b)’s heighted pleading requirements. Accordingly, as alleged, Vybes’s theory of

personal liability fails as a matter of law.

IV. CONCLUSION

For the reasons set forth above, Rainforest’s and Ridings’ Motions to Dismiss are

GRANTED, and Vybes’s Counterclaims and Third-Party Complaint are DISMISSED8 without

prejudice.

Date: August 31, 2021 /s/ Brian R. Martinotti

HON. BRIAN R. MARTINOTTI

UNITED STATES DISTRICT JUDGE

8 Throughout its Counterclaim and Third-Party Complaint, Vybes seeks various forms of relief.

These forms of relief include: (1) consequential damages; (2) rescission of the termination

agreement; (3) attorney’s fees; and (4) punitive damages. (See ECF No. 13 ¶¶ 36–58.) Rainforest

alternatively moves to strike each of these requested remedies if the Court were to find any of

Vybes’s claims survive dismissal. (ECF No. 16.) Because the Court has found each of Vybes’s

claims should be dismissed, it will not address Rainforest’s motion to strike. However, each of

Vybes’s claims are dismissed without prejudice, and Vybes is afforded an opportunity to amend

its pleadings. If Vybes cures the deficiencies set forth in this Opinion, the Court will revisit whether

Vybes is entitled to the relief it requests.