IceMOS Technology Corp. v. Omron Corp.

          ORDER

          James A. Teilborg, Senior United States District Judge.

         Pending before the Court is Plaintiff/Counter-Defendant’s Motion for Judgment on the Pleadings (Doc. 69) pursuant to Federal Rule of Civil Procedure (“Rule”) 12(c). The Court now rules on the motion.

         I. BACKGROUND

         On November 30, 2018, Plaintiff/Counter-Defendant IceMOS Technology Corporation (hereinafter “Counter-Defendant”) filed the pending Motion for Judgment on the Pleadings (Doc. 69). Defendant/Counter-Claimant Omron Corporation (hereinafter “Counter-Claimant”) filed a timely Response (Doc. 93) on January 2, 2019, and Counter-Defendant subsequently filed a Reply (Doc. 96) on January 9, 2019.

         A. Facts

         The following facts are either undisputed or construed in the light most favorable to the non-moving party.^[1] See Wyler Summit P’ship v. Turner Broad. Sys., Inc., 135 F.3d 658, 661 (9th Cir. 1998). Counter-Defendant sets out to sell super junction metal oxide semiconductor field-effect transistors (“Super Junction MOSFETs”) to third-parties. (Doc. 60 at 6–7). On October 12, 2006, Counter-Defendant’s representative approached Counter-Claimant and suggested that the parties enter into a business relationship. (Id. at 11). Counter-Claimant’s representatives entered into “preliminary discussions” with Counter-Defendant in April 2007. (Id. at 12).

         During negotiations, Counter-Defendant represented to Counter-Claimant that monthly demand for Super Junction MOSFETs would “remain at a forecasted volume of up to 3,500 wafers per month by the year 2014.” (Doc. 28 at 49). Additionally, Counter-Defendant indicated that it would order “more than 240,000 wafers for Super Junction MOSFETs” between 2011 and 2017. (Id.) Counter-Defendant and Counter-Claimant eventually entered into an agreement (“Supply Agreement”) on February 28, 2011 for Counter-Claimant to fabricate and supply semiconductor wafers for Counter-Defendant’s Super Junction MOSFETs. (Doc. 60 at 15).

         The Supply Agreement obligated Counter-Defendant to provide a “monthly rolling forecast of its estimated demand for wafers over the next twelve months” in order to allow Counter-Claimant to plan for the manufacture of wafers reasonably in line with the estimated demands” of Counter-Defendant. (Doc. 59-1 at 6). Additionally, the Supply Agreement required Counter-Defendant to provide updated forecasts to Counter-Claimant “no later than fourteen days before the end of each calendar month.” (Id.). After Counter-Claimant fabricated and supplied the semiconductor wafers, the Supply Agreement required Counter-Defendant to pay Counter-Claimant at net sixty (60) days EOM. (Id.). Between December 2013 and December 2014, Counter-Defendant made thirteen late payments. (Doc. 28 at 43–44). Additionally, Counter-Defendant ordered only 5,202 semiconductor wafers between 2011 and 2017, approximately two percent of its forecasted need represented during negotiations. (Id. at 49).

         The Supply Agreement would have had a term of ten years from the effective date, but Counter-Claimant exercised its termination options under the Supply Agreement. (Doc. 60 at 20). Following Counter-Claimant’s termination of the Supply Agreement, Counter-Defendant initiated the current litigation, alleging, among other claims, breach of contract and fraud. (Doc. 14 at 18–23). In response, Counter-Claimant brought counterclaims against Counter-Defendant, asserting the following causes of action: (i) breach of the implied covenant of good faith and fair dealing, (ii) breach of contract for failure to timely make payments, (iii) breach of contract for failure to pay invoices, and (iv) fraud in the inducement. (Doc. 28 at 41–50; see also Doc. 60 at 63).

         On November 30, 2018, Counter-Defendant moved for Judgment on the Pleadings on the following three claims: (i) breach of implied covenant of good faith & fair dealing, (ii) breach of contract for failure to timely make payments, and (iii) fraud in the inducement. (Doc. 69).^[2]

         II. LEGAL STANDARD

         “A judgment on the pleadings is properly granted when, taking all the allegations in the pleadings as true, the moving party is entitled to judgment as a matter of law.” Nelson v. City of Irvine, 143 F.3d 1196, 1200 (9th Cir. 1998) (citation omitted). In other words, dismissal pursuant to Rule 12(c) is appropriate if the facts as pleaded would not entitle the plaintiff to a remedy. See Merchs. Home Delivery Serv., Inc., v. Hall & Co., 50 F.3d 1486, 1488 (9th Cir. 1995). “Federal courts generally hesitate to grant judgment on the pleadings, because ‘hasty or imprudent use of this summary procedure by the courts violates the policy in favor of ensuring to each litigant a full and fair hearing on the merits of his claim or defense.’” Carrasco v. Fiore Enters., 985 F. Supp. 931, 934 (D. Ariz. 1997) (quoting 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure, Civil 2d § 1368 (1990)). A motion for judgment on the pleadings under Rule 12(c) is “functionally identical” to a Rule 12(b)(6) motion to dismiss. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054 n.4 (9th Cir. 2011). Therefore, “the same standard of review applies to motions made under either rule.” Id. (internal quotations and citation omitted).

         To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must meet the pleading requirements of Rule 8. Rule 8 requires that the pleading contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). To meet this standard, a complaint must contain sufficient factual matter, which, if accepted as true, states a claim that is “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). To have facial plausibility, a complaint must include factual content that allows the Court to “draw the reasonable inference” that the defendant is liable for the alleged misconduct. Iqbal, 556 U.S. at 678. “Legal conclusions couched as factual allegations are not entitled to the assumption of truth and therefore are insufficient to defeat a motion to dismiss for failure to state a claim.” Arvizu v. Medtronic, Inc., 41 F. Supp. 3d 783, 786 (D. Ariz. 2014) (citations omitted). The analysis is “context-specific” and is driven by “judicial experience and common sense.” Iqbal, 556 U.S. at 679. In deciding a motion to dismiss, the Court must construe the facts alleged in the complaint in the light most favorable to the non-moving party. See Cafasso, 637 F.3d at 1053; Wyler Summit P’ship, 135 F.3d at 661.

         III. ANALYSIS

         In moving for judgment on the pleadings, Counter-Defendant argues that: (1) the counterclaim for breach of the implied covenant of good faith and fair dealing fails to allege a breach; (2) the counterclaim for breach of contract for failure to timely make payments fails because Counter-Claimant waived timely payment; and (3) the counterclaim for fraud in the inducement both fails for lack of particularity and fails to allege an actionable fraudulent representation. (Doc. 69).

         A. Implied Covenant of Good Faith and Fair Dealing

         Per Article IX of the Supply Agreement, New York law governs the Supply Agreement. (Doc. 59-1 at 9).

         1. Legal Standard

         Under New York law, “all contracts imply a covenant of good faith and fair dealing.” 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 773 N.E.2d 496, 500 (N.Y. 2002); see also Dalton v. Educ. Testing Serv., 663 N.E.2d 289, 291 (N.Y. 1995). The implied obligation of each promisor to exercise good faith encompasses “any promises which a reasonable person in the position of the promisee would be justified in understanding were included.” Dalton, 663 N.E.2d at 291 (citation omitted). This covenant includes an implicit promise that “neither party to a contract shall do anything which has the effect of destroying or injuring the right of the other party to receive the fruits of the contract.” M/A-COM Sec. Corp. v. Galesi, 904 F.2d 134, 136 (2d Cir. 2006). “Whether particular conduct violates or is consistent with the duty of good faith and fair dealing necessarily depends upon the facts of the particular case, and is ordinarily a question of fact to be determined by the jury or other finder of fact.” Int’l Tech. Mktg., Inc. v. Verint Sys., Ltd., 157 F. Supp. 3d 352, 368 (S.D.N.Y. 2016) (quoting Tractebel Energy Mktg., Inc. v. AEP Power Mktg., Inc., 487 F.3d 89, 98 (2d Cir. 2007)).

         “[B]reach of this covenant may give rise to a claim of relief.” ARI & Co. v. Regent Int’l Corp., 273 F.Supp.2d 518, 522 (S.D.N.Y. 2003). However, the covenant only applies “where an implied promise is so interwoven into the contract as to be necessary for effectuation of the purposes of the contract.” Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 407 (2d Cir. 2006) (internal quotations and citations omitted). “It is the ‘intent and reasonable expectations’ of parties entering into a given contract that fix the boundaries of the covenant of good faith and fair dealing, provided that those expectations are consistent with the express terms of the contract.” ARI & Co., 273 F.Supp.2d at 522 (quoting Cross & Cross Props., Ltd. v. Everett Allied Co., 886 F.2d 497, 502 (2d Cir. 1989)). This necessarily means that any breach of the implied covenant of good faith and fair dealing must be grounded in the terms of the underlying contract and does not create new contractual rights between the parties. See Geler v. Nat’l Westminster Bank USA, 770 F. Supp. 210, 215 (S.D.N.Y. 1991). Moreover, “[t]he ...