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W. Silver Recycling, Inc. v. Protrade Steel Company, Ltd.

United States District Court, M.D. Tennessee, Nashville Division

August 8, 2019

PROTRADE STEEL COMPANY, LTD., Defendant/Third-Party Plaintiff,
SOUTHERN RECYCLING, LLC, Third-Party Defendant.



         Before the Court is Third-Party Defendant Southern Recycling, LLC's Motion to Dismiss the Third-Party Complaint (Doc. No. 22, “the Motion”), supported by an accompanying brief (Doc. No. 23). Third-Party Plaintiff, ProTrade Steel Company, Ltd., filed a response (Doc. No. 27). Thereafter, the Court directed the parties to the Motion[1] to file, and they did file, additional briefing on the following issue(s): Whether the Uniform Commercial Code governs the allegedly breached contract, and if so, how the applicability of the Uniform Commercial Code affects the analysis of the Third-Party Defendant's Motion to Dismiss. (Doc. Nos. 36, 39). For the below stated reasons, the Motion will be denied.


         ProTrade Steel Company, Ltd. (“ProTrade”) is in the metals brokerage business and frequently enters into contracts to purchase scrap metal from a company, planning to sell the material it purchases to other companies in need of such metal. (Doc. No. 13 at ¶¶ 1-2 (“Third-Party Compl.”)). Southern Recycling, LLC (“Southern”) operates metal processing facilities in Nashville, Tennessee and Bowling Green, Kentucky, as well as a barge loading facility in Clarksville, Tennessee. (Id. at ¶¶ 3-4).

         ProTrade entered into a contract with W. Silver Recycling, LLC (“W. Silver”), which provided ProTrade would purchase from W. Silver the contents of Barge # AEP 7232 (“the barge”), approximately 1, 302.27 gross tons of scrap metal, at a price of $335 per gross ton. (Id. at ¶ 9). The scrap metal consisted primarily of metal busheling, which previously had been rejected by a steel mill in Mobile, Alabama. (Id. at ¶ 10). Before attempting to find its own buyer for the scrap metal, ProTrade inquired as to the reason for the steel mill's rejection of the scrap metal. (Id. at ¶ 11). W. Silver informed ProTrade that the steel mill rejected the scrap metal only because some of the busheling was “oversized.” (Id.).

         On August 29, 2017, ProTrade entered into a contract (“8/29 Sale Contract”)[3] with Southern for ProTrade to sell to Southern the contents of the barge (purchased from W. Silver) at a price of $365 per gross ton delivered. (Id. at ¶ 8). By selling the materials purchased from W. Silver to Southern for a higher price, ProTrade expected to profit approximately $9, 168.03. (Id. at ¶ 9). The 8/29 Sale Contract incorporated ProTrade's Terms and Conditions. (Id. at ¶ 15). The Terms and Conditions warrant only that the material will conform to the description on the face of the contract “with variations in size, composition, and quality consistent with norms in the trade.” (Id. at ¶ 16). The Terms and Conditions specifically disclaim any other implied warranties. (Id.).

         After the 8/29 Sale Contract was entered into, ProTrade proceeded to transport the barge from Mobile, Alabama to Clarksville, Tennessee. (Id. at ¶ 18). While the barge was in transit, the market price for metal busheling fell by approximately $40 per gross ton. (Id. at ¶ 20). The barge arrived in Clarksville on September 22, 2017. (Id. at ¶ 21). On September 28, 2017, Southern informed ProTrade that it was rejecting the scrap metal materials on the barge. (Id. at ¶ 22). ProTrade inspected the materials and informed Southern that it believed its rejection was improper. (Id.). Southern indicated that it would be willing to pay $260 per gross ton, instead of the original contract price of $365. (Id.).

         The barge of scrap metal was accruing daily additional demurrage charges as it sat in Clarksville, Tennessee. (Id. at ¶ 23). Due to Southern's refusal to pay the original contract price of $365 per gross ton, and W. Silver's refusal to reduce its sale price, ProTrade opted to exercise its rights under the contract with W. Silver to downgrade the materials and paid W. Silver $265 per gross ton.[4] (Id.). ProTrade also accepted payment of $270 per gross ton from Southern, the most Southern would willingly pay under the circumstances. (Id.). Another document, also entitled “Sale Contract, ” was issued (apparently on or after November 1, 2017) (“11/1 Sale Contract”)[5] to reflect the change in price. (Doc. No. 13-2). The 11/1 Sale Contract is substantially similar to the 8/29 Sale Contract, but the 11/1 Sale Contract includes the addition, “11/1: PRICE UPDATED FROM $365 TO $270” and elsewhere reflects the change of price to $270 per gross ton. (Id.). Southern's improper rejection of the goods caused ProTrade to accept a reduced price. (Id. at ¶ 24).

         On July 31, 2019, W. Silver filed a lawsuit against ProTrade, asserting breach of contract, breach of implied contract, negligent misrepresentation, and unjust enrichment. (Doc. No. 1). On October 30, 2019, ProTrade filed the Third-Party Complaint against Southern, alleging breach of contract and equitable indemnity. (Doc. No. 13). On December 6, 2019, Southern then filed a Motion to Dismiss the Third-Party Complaint (Doc. No. 22) and ProTrade responded (Doc. No. 27). Now that the above-referenced supplemental briefing has been filed, the Motion is ripe for adjudication.


         For purposes of a motion to dismiss, the Court must take all of the factual allegations in the complaint as true, as the Court has done above. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. Id. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. Id. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. Id. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief. Id. at 679. A legal conclusion, including one couched as a factual allegation, need not be accepted as true on a motion to dismiss, nor are mere recitations of the elements of a cause of action sufficient. Id. at 678; Fritz v. Charter Twp. of Comstock, 592 F.3d 718, 722 (6th Cir. 2010); Abriq v. Hall, 295 F.Supp.3d 874, 877 (M.D. Tenn. 2018). Moreover, factual allegations that are merely consistent with the defendant's liability do not satisfy the claimant's burden, as mere consistency does not establish plausibility of entitlement to relief even if it supports the possibility of relief. Iqbal, 556 U.S. at 678.

         In determining whether a complaint is sufficient under the standards of Iqbal and its predecessor and complementary case, Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), it may be appropriate to “begin [the] analysis by identifying the allegations in the complaint that are not entitled to the assumption of truth.” Iqbal, 556 U.S. at 680. Identifying and setting aside such allegations is crucial, because they simply do not count toward the plaintiff's goal of showing plausibility of entitlement to relief. As suggested above, such allegations include “bare assertions, ” formulaic recitation of the elements, and “conclusory” or “bald” allegations. Id. at 681. The question is whether the remaining allegations - factual allegations, i.e., allegations of factual matter - plausibly suggest an entitlement to relief. Id. If not, the pleading fails to meet the standard of Fed.R.Civ.P. 8 and thus must be dismissed pursuant to Rule 12(b)(6). Id. at 683.

         As a general rule, matters outside the pleadings may not be considered in ruling on a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) unless the motion is converted to one for summary judgment under Rule 56. Fed.R.Civ.P. 12(d). However, when a document is referred to in the pleadings and is integral to the claims, it may be considered without converting a motion to dismiss into one for summary judgment. Doe v. Ohio State Univ., 219 F.Supp.3d 645, 652-53 (S.D. Ohio 2016); Blanch v. Trans Union, LLC, 333 F.Supp.3d 789, 791-92 (M.D. Tenn. 2018).


         I. Choice of law

         Before determining whether ProTrade's third-party claims survive Southern's Motion to Dismiss, the Court must first address the applicable choice of law. See, e.g., Pa. Emp., Benefit Trust Fund v. Zeneca, Inc., 710 F.Supp.2d 458, 466 (D. Del. 2010) (noting that before addressing a motion to dismiss, “the Court must first resolve the choice-of-law question to determine the applicable law relevant to each [claim]”). In cases where federal courts have diversity jurisdiction pursuant to 28 U.S.C. § 1332, federal courts apply the choice-of-law rules of the forum state. Klaxon Co. v. ...

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