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Omron Electronic Components LLC v. Thinklogical

December 9, 2009

OMRON ELECTRONIC COMPONENTS LLC, PLAINTIFF/COUNTER-DEFENDANT,
v.
THINKLOGICAL, INC., FORMERLY KNOWN AS LOGICAL SOLUTIONS, INC., DEFENDANT/COUNTER-PLAINTIFF.



The opinion of the court was delivered by: John F. Grady, United States District Judge

MEMORANDUM OPINION

Before the court is the motion of plaintiff/counter-defendant Omron Electronic Components LLC ("Omron") to dismiss the counterclaim of defendant/counter-plaintiff Thinklogical, Inc. ("Thinklogical") pursuant to Federal Rule of Civil Procedure 12(b)(6). Also before the court is Thinklogical's motion to strike Omron's reply brief or to convert the motion to dismiss into a motion for summary judgment. For the reasons explained below, Omron's motion is granted, and Thinklogical's motion is denied.

BACKGROUND

This is a breach of contract action in which Omron alleges that Thinklogical failed to pay for optical sub-assemblies ("OSAs") that it delivered to Thinklogical in 2008. Omron also claims that Thinklogical wrongfully cancelled a number of orders for OSAs that it had placed with Omron. Omron's complaint contains two counts for breach of contract. Count I is based on Thinklogical's alleged failure to pay for goods sold and delivered pursuant to a series of purchase orders, and Count II is based on Thinklogical's alleged cancellation of orders. Omron seeks $849,772.50 in compensatory damages on Count I and $1,661,467.50 in compensatory damages on Count II plus prejudgment interest and reasonable attorney's fees.

Thinklogical, for its part, alleges that Omron knowingly shipped "defective" transmitting optical sub-assembly parts ("TOSA parts") and "useless" receiving optical sub-assembly parts ("ROSA parts") through November 2008. (Countercl. ¶ 25.) Thinklogical's counterclaim contains five counts: breach of contract (Count I); breach of express warranty (Counts II and III); breach of the implied warranty of merchantability (Count IV); and breach of the implied warranty of fitness for a particular purpose (Count V).

Omron now moves to dismiss Thinklogical's counterclaim. Thinklogical moves to strike Omron's reply brief or to convert the motion to dismiss into a motion for summary judgment.

DISCUSSION

The purpose of a 12(b)(6) motion to dismiss is to test the sufficiency of the complaint, not to resolve the case on the merits. 5B Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1356, at 354 (3d ed. 2004). Under federal notice-pleading standards, a complaint need not contain "detailed factual allegations," but it must have more than mere "labels and conclusions." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). A plaintiff is obligated to provide the factual grounds of his entitlement to relief, and a "formulaic recitation" of the elements of a claim will not do. Id. The complaint must contain sufficient facts to raise a plaintiff's right to relief above a "speculative" level, id. at 555, and the claim must be "plausible on its face," id. at 570. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). When evaluating a motion to dismiss a complaint, we must accept as true all factual allegations in the complaint, but not its legal conclusions. Id. at 1949-50.

The counterclaim alleges the following facts. Thinklogical designs and manfactures technically sophisticated communications products. Its products are used in "sensitive applications" by public and private corporations as well as governmental intelligence and defense agencies. (Countercl. ¶ 5.) In 2002, Thinklogical began communicating with one of Omron's predecessor companies, Blaze Network Products ("BNP"), to determine whether BNP could supply optical components for Thinklogical's products. BNP shipped samples of its TOSA and ROSA parts for Thinklogical's evaluation. In response to Thinklogical's inquiry, BNP's CEO, Brian Peters, represented that the mean time between failures ("MTBF") for the parts exceeded 90,000 hours; in other words, the parts would not fail for approximately ten years.

In reliance on the product samples, Peters's description of the parts, and Peters's representation about the MTBF, Thinklogical entered into a series of contracts to purchase the parts from BNP. In January 2004, BNP was purchased by Aduro, Inc. ("Aduro"); Aduro, in turn, was purchased by Omron in January 2006. Peters continued his employment with these successor companies.

Following Omron's acquisition of Aduro, Omron assured Thinklogical that it would continue to supply TOSA and ROSA parts of the same, if not superior, quality as those supplied by its predecessors. In reliance on these representations and others, Thinklogical decided to continue purchasing the parts from Omron. Omron knew that Thinklogical used the parts as components for its line of fiber-optic-based video extender products, which are used in "performance-sensitive military, defense intelligence, and air traffic control applications," Countercl. ¶ 16, and it knew that Thinklogical was relying on Omron's skill and/or judgment to furnish suitable parts for the line. Omron also knew that Thinklogical needed the parts to complete orders for its products and that it had no alternative supplier for the parts.

In 2007, Thinklogical's customers began to experience malfunctions in the video extender products they had purchased from Thinklogical. The malfunctions were caused by the failure of the TOSA parts supplied by Omron. Thinklogical promptly notified Omron of these failures. The same year, Omron determined that the TOSA parts were subject to failure as a result of defective lasers installed in the parts, and it "notified Thinklogical that it was experiencing problems with its production line equipment that could cause premature TOSA Parts laser failure following installation on Thinklogical's clients' premises." (Id. ¶ 22.) In the spring of 2008, Omron assured Thinklogical that it would remedy the laser defects, and in October 2008, Omron again admitted that a laser defect existed in the TOSA parts, "but advised Thinklogical that it would continue shipping the defective products to Thinklogical for up to one more year." (Id. ¶ 24.) Despite Thinklogical's repeated requests, Omron was "unwilling or unable to remedy the laser-related defect in its TOSA Parts, and knowingly continued to ship defective TOSA Parts and useless ROSA Parts to Thinklogical through November of 2008." (Id. ¶ 25.)

According to Thinklogical, Omron breached the series of contracts that the parties entered into in 2008, as well as the express warranty relating to the MTBF of the parts and the express warranty that Omron's parts would conform to the samples. There is also a claim that Omron breached the implied warranty of merchantability and the implied warranty of fitness for the particular purposes for which Thinklogical used the parts. Thinklogical alleges that it has performed all conditions required of it under the terms of the parties' contracts, and that as a result of Omron's conduct, it has sustained significant damages, including the loss of customers, goodwill, and reputation in the industry as well as the costs of repair and replacement, design, and travel. Compensatory damages equal to the difference between the value of the parts as delivered and the value of the parts had they been manufactured and delivered "as warranted" are sought. Thinklogical also seeks incidental damages, consequential damages, costs incurred as a result of the breach, and the costs of this action.

Omron contends that Thinklogical's claims are barred by the terms of the series of contracts between the parties, which are attached to Omron's complaint and its motion to ...


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