Variblend Dual Dispensing Systems LLC v. Crystal International Group, Inc.

Background

VariBlend sued Crystal International (Group) Inc. and Gerhard Brugger. VariBlend alleged breach of contract against Brugger and tortious interference with contract and unfair competition against Crystal. Brugger asserted counterclaims against VariBlend, J. Burke Capital Partners LLC, and JBCP-24 LLC. The motion addressed here was VariBlend’s motion to dismiss Counts II, III, and V of Brugger’s amended counterclaims and all of Crystal’s amended counterclaims.

The dispute arose from an April 2010 licensing agreement concerning variable-flow disc technology used in dispensers. Brugger alleged that VariBlend failed to meet minimum sales and commercialization obligations, falsified invoices to make it appear that sales requirements had been met, and failed to disclose an improvement. The agreement terminated in March 2018, according to Brugger’s allegations.

Fraud Counterclaim

Brugger alleged that VariBlend’s invoice-falsification scheme caused him to lose royalty payments and business opportunities. The court applied New York’s out-of-pocket rule, which limits fraud damages to actual financial losses directly caused by the alleged misrepresentation. The court held that Brugger had not plausibly alleged that opportunities with Faber-Castell or Seidel remained available during the 2014–2017 period when the alleged fraud occurred. It also held that his allegations about self-producing the products did not show that he had the ability to do so or that self-production would have generated greater revenue.

The court therefore dismissed Brugger’s fraud counterclaim against VariBlend because the alleged damages were too speculative.

Implied Duty of Good Faith and Fair Dealing

Brugger also claimed that VariBlend breached the implied duty of good faith and fair dealing. The court explained that such a claim generally cannot proceed separately when it is based on the same conduct and damages as an express breach-of-contract claim. To the extent Brugger relied on VariBlend’s failure to meet sales or commercialization obligations, the court found the claim duplicative.

The court separately considered the allegation that the invoice-falsification scheme breached the implied duty. It held that Brugger still had not adequately alleged actual, nonduplicative damages. The alleged lost opportunities were speculative, the claimed additional royalties were unsupported and potentially duplicative, and the other claimed losses were conclusory. The court therefore found that Brugger had not adequately stated an implied-duty claim.

Declaratory-Judgment Counterclaims

VariBlend also moved to dismiss Brugger’s and Crystal’s counterclaims seeking declaratory judgments. Brugger and Crystal agreed to dismiss those counterclaims without prejudice while reserving the right to reassert them if VariBlend unilaterally dismissed its breach-of-contract claim against Brugger or its tortious-interference or unfair-competition claims against Crystal. The court granted the motion to dismiss those counterclaims.

Disposition

The court granted VariBlend’s motion to dismiss Counts II, III, and V of Brugger’s amended counterclaims and all of Crystal’s amended counterclaims. The dismissals were with prejudice except for the declaratory-judgment counterclaims. Brugger and Crystal could reassert those claims only if VariBlend unilaterally dismissed the specified claims in its complaint. The court also directed the Clerk to terminate the motion.