Baskovich v. JFC Tobacco Corp.

Background

Greg Baskovich and Grateful Papers Distributing, Inc. sued JFC Tobacco Corporation and JPG Herbals, LLC. The amended complaint asserted claims involving two agreements: a Product Supply Agreement between JFC and Grateful Papers, and an Employment Agreement between JFC and Baskovich. The claims concerned alleged off-price sales, unpaid commissions, termination of the Product Supply Agreement, and JPG Herbals’ alleged diversion of products that Grateful Papers owned.

The amended complaint asserted eight remaining claims: breach of the Product Supply Agreement; breach of the Employment Agreement; account stated; conversion; two promissory-estoppel claims; breach of the implied covenant of good faith and fair dealing; and declaratory judgment. The defendants moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint legally states a claim. They also moved under Rule 12(b)(2), which concerns personal jurisdiction, to dismiss the conversion claim against JPG Herbals.

Personal Jurisdiction

The court denied the Rule 12(b)(2) motion. It applied the test for specific personal jurisdiction, which asks whether the defendant purposefully directed conduct toward the forum, whether the claim arose from that conduct, and whether exercising jurisdiction would be reasonable.

The court held that the allegations and evidence plausibly showed that JPG Herbals intentionally took products that were headed to California, knew the products were destined for California, and caused harm likely to be suffered there. The conversion claim arose from that alleged conduct. The court also found that the defendants had not shown a compelling reason why exercising jurisdiction in California would be unreasonable. The motion to dismiss for lack of personal jurisdiction was therefore denied.

Rule 12(b)(6) Rulings

Claim 1: Breach of the Product Supply Agreement

The Product Supply Agreement selected Puerto Rico law. The court held that the choice-of-law provision was enforceable because JFC’s status as a Puerto Rico company established a substantial relationship with Puerto Rico, and the plaintiffs had not shown that applying Puerto Rico law would violate California public policy.

The plaintiffs alleged that JFC improperly terminated the agreement based on off-price sales even though JFC had authorized those sales. The court held that the written approvals plausibly showed that JFC waived enforcement of the pricing provision for the specific sales alleged. The court denied dismissal of Claim 1. It did not reach the plaintiffs’ alternative theories concerning modification of the agreement or JFC’s alleged acquiescence to JPG Herbals’ diversion of products.

Claim 2: Breach of the Employment Agreement

The Employment Agreement also selected Puerto Rico law, and the court applied that law. The plaintiffs alleged that JFC failed to pay Baskovich a 4.5% commission on certain indirect and direct sales outside California, Arizona, and Nevada.

The court held that the plaintiffs plausibly alleged that JFC’s repeated assurances of payment acknowledged the commission debt and extended the time to sue on claims concerning earlier sales. The court also held that the alleged request that Baskovich take over direct sales, along with related conduct, plausibly supported reliance on the Puerto Rico doctrine concerning a party’s own acts. The court denied dismissal of Claim 2. It did not reach the plaintiffs’ alternative arguments concerning a 15-year limitations period or valid written amendments.

Claim 3: Account Stated

The plaintiffs stated that they did not oppose dismissal of the account-stated claim. The court granted dismissal of Claim 3 without leave to amend.

Claim 4: Conversion

The plaintiffs alleged that the defendants took products owned by Grateful Papers without paying for them. The court found that the defendants’ arguments did not establish that the claim arose solely from a preexisting contract, that the plaintiffs failed to plead a wrongful act, that limitations barred the entire claim, or that the claim was implausible because of the timing of JPG Herbals’ formation.

The court did not decide which law governed the conversion claim because the briefing was inadequate and none of the defendants’ arguments required dismissal at that stage. It held that the plaintiffs plausibly alleged conversion and denied dismissal of Claim 4.

Claims 6 and 7: Promissory Estoppel

The plaintiffs pleaded promissory estoppel as an alternative to their contract claims. During oral argument, however, they conceded that the complaint did not allege that no contract governed the relevant conduct. The court granted dismissal of both promissory-estoppel claims without leave to amend because the plaintiffs had made multiple attempts to plead them and amendment would be futile.

Claim 8: Implied Covenant of Good Faith and Fair Dealing

The court applied Puerto Rico law to the claim that JFC breached the implied covenant by terminating the Product Supply Agreement and refusing to pay certain commissions. The court held that the defendants had not shown that the claim should be dismissed, particularly because the court was allowing the related contract claims to proceed. The court denied dismissal of Claim 8.

Claim 9: Declaratory Judgment

The plaintiffs sought a declaration that the Product Supply Agreement remained in effect through December 14, 2022. The court held that this request duplicated the breach-of-contract claim because success on that claim would effectively provide the requested determination. The court granted dismissal of Claim 9 without leave to amend.

Disposition

The court’s order denied dismissal of Claims 1, 2, 4, and 8. It granted dismissal without leave to amend of Claim 3, Claims 6 and 7, and Claim 9. The court also denied the defendants’ motion to dismiss the conversion claim for lack of personal jurisdiction. The opinion does not identify the judge by name.