Access Business Group International, LLC v. Refresco Beverages US Inc.

Background

Access Business Group International, LLC and Access Business Group LLC, together called “Access,” entered into a written purchase agreement with Refresco Beverages US Inc. on January 14, 2020. Refresco agreed to manufacture and sell bottled or canned drink products for Access. The agreement stated that Access had no obligation to order a minimum quantity of products or use Refresco as its exclusive supplier, except that any purchase order would have a minimum quantity of 25,000 cases, or 300,000 cans.

After Access supplied formulas for energy drinks to be packaged in aluminum cans, the parties signed two letter agreements concerning possible corrosion. The second letter stated that Refresco would have no liability for damages caused by the formulas and that Access would indemnify Refresco from claims and damages due to corrosion problems. Access later reported that some products were leaking, and the opinion states that the formulas caused the cans to corrode. Access then stopped issuing purchase orders to Refresco.

Access sued Refresco, alleging that Refresco supplied nonconforming products and refused to reimburse Access. Refresco asserted two counterclaims: one for breach of contract, including breach of the implied duty of good faith and fair dealing, and one seeking indemnification for expenses incurred in responding to Access’s lawsuit. Access moved to dismiss both counterclaims under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a pleading does not state a legally sufficient claim.

Breach-of-contract counterclaim

The court held that Refresco’s breach-of-contract counterclaim failed to state a claim. The agreement’s language meant that Access was not required to issue any purchase order. Access became obligated to purchase the minimum quantity only if it first issued a purchase order. The agreement also described purchase-order forecasts as estimates rather than binding commitments.

Because the agreement did not require Access to place orders, the court found that Access’s decision to stop ordering products was not a de facto termination and did not breach the agreement’s termination procedures. The court also rejected Refresco’s claim based on the implied covenant of good faith and fair dealing. That covenant cannot be breached when the contract expressly permits the challenged conduct and the party acts according to the contract’s terms. The court therefore dismissed the breach-of-contract counterclaim.

Indemnification counterclaim

The court also dismissed Refresco’s indemnification counterclaim. Under New York law, an indemnification provision must show an unmistakable intention to cover claims between the contracting parties, rather than only claims brought by third parties.

The provision in the second letter said that Access would indemnify Refresco from claims and damages caused by corrosion problems. The court found that the provision did not expressly mention claims between Access and Refresco, and that the language could apply to third-party claims. It therefore lacked the clear language required to make Access responsible for Refresco’s expenses in defending Access’s lawsuit. The court also rejected Refresco’s attempt to rely on rules applicable to insurance agreements.

Disposition

The court granted Access’s motion to dismiss the counterclaims in full. The opinion states that both counterclaims were dismissed. It does not state that the dismissal was with or without prejudice. The Clerk of Court was directed to close the motion at Docket No. 34.

Classification note

This is a procedural order because the court ruled on a motion under Rule 12(b)(6), deciding whether Refresco adequately stated its counterclaims rather than resolving the ultimate merits of the underlying dispute.