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Weinstein v. Meritor, Inc.

United States District Court, D. Nevada

September 28, 2017

M. Paul Weinstein, Plaintiff
v.
Meritor, Inc., Does I through X, Defendants

          ORDER GRANTING DEFENDANT'S MOTION TO [ECF, 23]

         Plaintiff M. Paul Weinstein sues defendant Meritor, Inc. for allegedly reneging on an agreement to purchase an anti-corrosion coating product. Meritor moves to dismiss all claims. Because I find that Weinstein has failed to provide facts sufficient to state a claim, I grant Meritor's motion to dismiss with leave to amend.

         Background[1]

         Meritor manufactures drivetrain, mobility, and braking components for trucks, buses, and trailers. In 2010, Zane McCarthy, the inventor of the anti-rust and anti-corrosion coating NanoWard® A (branded by Meritor as ZXP3) sold Dennis Reidel-who was Hydraulic Brake Product Manager of Meritor's Aftermarket Division at the time-a 1500-gallon container of ZXP3 and agreed that Meritor would have exclusive rights to use ZXP3 in the heavy-vehicle industry. But the Meritor Materials team "could not believe that McCarthy had come up with an acceptable corrosion solution after Meritor's engineers had failed to find one after spending years and millions of dollars trying." Meritor Chemist Troy Muransky subjected the coating to extensive testing but was unable to invalidate ZXP3. The product was approved and Meritor released brake rotors coated with ZXP3 to Aftermarket customers.

         At some point after the 2010 contract was resolved, Weinstein acquired ownership of ZXP3 and retained McCarthy to help him market the products. In 2014, McCarthy reached out to Reidel to see if Meritor wished to restock its ZXP3 order. In July, Weinstein and McCarthy traveled to Troy, Michigan to meet with Reidel and purchasing representatives Sara Thomas and David Casteel to discuss a new purchase order. At that meeting, Thomas said that customers were eager to reorder ZXP3-coated rotors and that Meritor had selected a rotor manufacturer in China that needed to be supplied with ZXP3. Reidel stated that he planned on ordering one 1500-gallon container, at $250 per gallon, immediately. Thomas confirmed that since ZXP3 was already tested and approved in 2010, no further testing was necessary. The only thing left to do was "to set up ZXP3 in the computer so the written [purchase order] would issue." Weinstein consented to giving Meritor exclusive rights to use ZXP3 in the heavy vehicle industry "provided certain conditions were met." Thomas also mentioned the possibility of designating ZXP3 as Meritor's exclusive coating. McCarthy informed Thomas that he could offer a 10% discount on purchase orders of more than three containers. Reidel stated that he would check to see if Meritor could expand their order.

         At the same meeting, McCarthy informed Thomas that he had developed another "more abrasion resistant anti-rust coating formula" called NanoWard® B that sold at the same price as ZXP3, but had not been tested on rotors yet. Thomas requested that Meritor test NanoWard® B on its rotors to determine if Meritor should purchase the product for its Original Equipment (OE) division as well as for Aftermarket. Reidel added that while Aftermarket customers were happy with ZXP3, he had no problem using NanoWard® B if Purchasing decided to choose it instead. Casteel said that he would "get with Troy Muransky right away" to conduct the NanoWard® B test. Weinstein and McCarthy expressed concern that Muransky would not give NanoWard® B a fair test, considering his attempts to invalidate ZXP3 in 2010. Weinstein therefore permitted Muransky to test NanoWard® B only if Meritor agreed to fully disclose Muransky's "test particulars, protocols, and requirements" so that he could hire an independent lab to simultaneously conduct identical testing.

         In September, Reidel informed Weinstein that he had recommended coating "all brake rotors with a cast-in tone ring for both hydraulic brakes and air brakes" with ZXP3. If his recommendation was approved, this would result in a much larger ZXP3 order. Weinstein told Reidel that for such an increased order, Weinstein would need to purchase additional material and expand his production facility. He asked Reidel if he could mention the potential increased orders to investors in order to finance the expansion. Reidel allowed Weinstein to do so, and offered to confirm that Aftermarket was a ZXP3 customer directly to prospective investors. At the end of September, Reidel informed Weinstein that his recommendation had been approved and that he would be ordering much more than one container of ZXP3 in February or March.

         In October, Casteel asked if Weinstein could send rotors coated with NanoWard® B and ZXP3 to Muransky to conduct a side-by-side comparison test. Weinstein agreed, "but confirmed on the phone and in writing that this would not be a reapproval of [ZXP3] and that Aftermarket's order of [ZXP3] was not conditioned on the outcome of the comparison test." Although testing was not a condition to Aftermarket's order, Casteel "delayed issuing [the previously discussed purchase order] because[] the quantity discount was calculated on the total amount ordered on each [purchase order] and OE would not place its order until after choosing between [ZXP3] and NanoWard® B." In January 2015, the rotors were coated and sent to Muransky for testing. Four rotors were retained for a control test by an independent lab that McCarthy selected. Muransky then provided McCarthy with "full disclosure" of the testing procedures that would be used so they could be replicated in the control test. However, Muransky did not disclose a requirement referred to as "MSP-105, " which Weinstein alleges is a "secret, internal specification [that] was contrived so ZXP3 could not meet MSP-105's arbitrary requirements." In March, the independent lab report confirmed that both coatings passed its test.

         In May, Muransky released a report "disparaging" both of Weinstein's coatings and representing that both failed to meet "the requirements of MSP-105." Meritor will not provide Weinstein with the MSP-105 specification despite numerous requests. After the report was released, Meritor "[went] silent" and refused to order ZXP3 and NanoWard® B.

         Weinstein theorizes that Meritor has "gone silent" and refused to reorder ZXP3 because in 2010, after ZXP3 passed testing and was offered to Aftermarket customers, customers of Meritor's OE division began demanding ZXP3 on their new rotors as well as the replacement rotors they purchased from Aftermarket. OE "didn't even try" to purchase ZXP3 for OE rotors, but instead "falsely represented" to OE customers that ZXP3 failed the secret MSP-105 specification and that the ZXP3 program had been cancelled. Instead, Meritor offered the OE customers rotors with a different coating that was substantially more expensive than ZXP3.

         So, when Casteel met with Muransky in 2014 to inform him of the new ZXP3 testing, "Materials was alerted that there could be trouble brewing." If ZXP3-coated rotors became available again, "disgruntled OE customers might realize that Meritor had lied to them in 2010-2011 and had been needlessly overcharging them." To avoid that result, Muransky concocted a sham test and prepared a fabricated report "as a pretext to permanently discredit and eliminate ZXP3" Weinstein alleges that, based on this series of events, Meritor is liable for (1) breach of oral contract, (2) breach of written contract, (3) promissory estoppel, (4) intentional misrepresentation, and (5) business disparagement. Meritor moves to dismiss all claims.[2]

         Discussion

         A. Motion-to-Dismiss standard

         Federal Rule of Civil Procedure 8 requires every complaint to contain "[a] short and plain statement of the claim showing that the pleader is entitled to relief"[3] While Rule 8 does not require detailed factual allegations, the properly pled claim must contain enough facts to "state a claim to relief that is plausible on its face"[4] This "demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation"; the facts alleged must raise the claim "above the speculative level."[5] In other words, a complaint must make direct or inferential allegations about "all the material elements necessary to sustain recovery under some viable legal theory."[6]

         District courts employ a two-step approach when evaluating a complaint's sufficiency on a Rule 12(b)(6) motion to dismiss. First, I must accept as true all well-pled factual allegations in the complaint, recognizing that legal conclusions are not entitled to the assumption of truth.[7]Mere recitals of a claim's elements, supported only by conclusory statements, are insufficient.[8]Second, I must consider whether the well-pled factual allegations state a plausible claim for relief[9] A claim is facially plausible when the complaint alleges facts that allow the court to draw a reasonable inference that the defendant is liable for the alleged misconduct.[10] A complaint that does not permit me to infer more than the mere possibility of misconduct has "alleged-but not shown-that the pleader is entitled to relief, " and it must be dismissed.[11] I liberally construe all pro se motions and pleadings.[12]

         B. Choice of law

         Weinstein argues that Michigan law applies to this dispute. Meritor concedes for the purposes of this motion, but reserves the right to argue the choice of law issue in the event the complaint is not dismissed. So I analyze the complaint under both Nevada and Michigan law.

         C. Breach of oral contract and promissory estoppel

         Weinstein alleges that Meritor breached its oral contract to issue a purchase order for one 1500-gallon container of ZXP3 for $250 per gallon. Meritor argues that Weinstein does not demonstrate that any definite contract was offered and accepted. Weinstein also asserts a promissory-estoppel "claim, " alleging that Meritor "promised to issue its [purchase order] to purchase [Weinstein's] anti-corrosion coating at an agreed price and payment terms."

         Under Michigan law, formation of a contract requires a definite and certain offer, and a definite and seasonable acceptance.[13] Likewise, promissory estoppel requires a clear and definite promise.[14] "Mere discussions and negotiations cannot be a substitute for the formal requirements of a contract."[15] Similarly, in Nevada, a valid contract requires an offer and acceptance, meeting of the minds, and consideration.[16] "With respect to contract formation, preliminary negotiations do not constitute a binding contract unless the parties have agreed to all material terms."[17] "A valid contract cannot exist when material terms are lacking or are insufficiently certain and definite."[18] Promissory estoppel in Nevada "is intended as a substitute for consideration, and not as a substitute for an agreement between the parties."[19]

         Weinstein does not allege in his complaint that he and Meritor definitively agreed on any material elements-namely the price, quantity, or subject matter-of the potential purchase order. At first, he states that Meritor, through Reidel, agreed to order one 1500-gallon container of ZXP3 for $250 per gallon. Weinstein goes on to state, however, that at the very same meeting Meritor and Weinstein discussed different price terms if Meritor would order more than three containers through one purchase order. Meritor responded that it would have to check and see if they needed a larger order, leaving the price and quantity terms uncertain. Further, at the same meeting, Meritor implied that it may be interested in ordering NanoWard® B instead, a different product than originally agreed to. The complaint does not allege that the specifics became more concrete as a result of later discussions. Indeed, the complaint alleges that, in what appears to have been late 2014 or early 2015, Meritor "had delayed issuing the [purchase order] because, the ...


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