Colgate-Palmolive Company v. Lanfranchi North America, Inc.

Background

Colgate sued Lanfranchi S.r.l. and its wholly owned subsidiary, Lanfranchi North America, Inc., asserting breach of contract, breach of express warranty, and breach of the implied covenant of good faith and fair dealing. The dispute concerned a 2013 agreement under which Lanfranchi North America agreed to provide and install a “Pucker” machine and a “De-Pucker” machine for Colgate’s liquid hand-soap assembly line at its Greenwood, South Carolina facility.

Colgate alleged that the equipment experienced numerous problems, including broken and failed components, electrical and programming issues, low air pressure, dropped bottles, jams, and operation at speeds below the agreed specifications. Colgate alleged that repeated technician visits did not resolve the problems, and that it incurred additional production costs, paid for extra services and parts, and eventually bought replacement equipment.

Lanfranchi S.r.l. was not a party to the agreement. Colgate alleged that Lanfranchi North America acted as Lanfranchi S.r.l.’s agent and alter ego, meaning that the subsidiary was so controlled and dominated by the parent that the court should disregard their separate corporate identities and hold the parent liable.

Legal standard

The defendants moved under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim. At this stage, the court accepts the complaint’s factual allegations as true and draws reasonable inferences for the plaintiff. The plaintiff need only allege facts supporting a plausible claim, not prove the claim.

Parent-company liability

New York choice-of-law principles led the court to apply Florida law to the corporate-veil question because Lanfranchi North America was organized under Florida law. Under Florida law, a plaintiff must allege that the parent dominated the subsidiary, that the corporate form was used fraudulently or for an improper purpose, and that this use caused injury.

The court held that Colgate plausibly alleged improper conduct. Colgate alleged that Lanfranchi North America had no independent operations, acted at Lanfranchi S.r.l.’s direction, lacked the ability to satisfy its sales contracts independently, and was funded by the parent without separate accounts, books, or finances. Colgate also alleged that the parent and its owners used the subsidiary as a shell to sell products while making the subsidiary judgment-proof.

The court also held that Colgate plausibly alleged injury. For purposes of the motion, the court assumed that the subsidiary could not satisfy a judgment and concluded that Colgate plausibly alleged that the subsidiary’s inability to honor its warranties—and the resulting losses—stemmed from the parent’s improper use of the subsidiary. Because veil piercing is fact-intensive and Colgate had alleged a plausible basis for it, the court denied the motion to dismiss all claims against Lanfranchi S.r.l.

Implied-covenant claim

Under New York law, a claim for breach of the implied covenant of good faith and fair dealing must be based on facts different from those supporting a breach-of-contract claim. A claim is redundant when the alleged bad conduct is also the basis for violating an express contract term.

The court found that Colgate’s implied-covenant claim was based on the same allegations as its contract claim: that Lanfranchi North America failed to provide equipment meeting the agreed specifications and failed to replace or satisfactorily repair the faulty equipment. The court therefore granted the motion to dismiss Colgate’s implied-covenant claim as redundant of the breach-of-contract claim.

Disposition

The court denied the defendants’ motion to dismiss with respect to Lanfranchi S.r.l. The court granted the defendants’ motion to dismiss with respect to Colgate’s implied-covenant claim.