Opinion
Civil Action No. 03-5046.
August 17, 2004
Memorandum and Order
Plaintiff Capp, Inc. ("Capp") brings this action against defendant Dickson/Unigage, Inc. ("Dickson"), seeking a declaratory judgment that neither its "private labeling" of SL4 temperature chart recorders nor its marketing of the "Capp Recorder" violates the Lanham Act, 15 U.S.C. § 1051 et seq. Capp also seeks damages for Dickson's alleged trade disparagement, as well as injunctive relief to preclude future disparagement. Dickson, in turn, has asserted counterclaims under the Lanham Act and state law. Presently before the court is Plaintiff's Motion to Dismiss Defendant's Amended Counterclaims, (Doc. #24) and Defendant's Motion for Leave to File a Second Amended Answer and Counterclaims (Doc. #40). Because I will grant defendant's motion in large part, plaintiff's motion to dismiss will be denied as moot. To the extent that portions of plaintiff's motion remain relevant, they will be addressed below.
Factual Background
Plaintiff is a supplier and distributor of process instrumentation controls and temperature chart recorders, devices which are used to monitor and maintain the temperature in vaccine storage units. Pl.'s Am. Compl. ¶ 6. Defendant, an Illinois corporation, manufactures chart recorders, data loggers, and software for recording and monitoring climatic variables. Id. at ¶¶ 3, 6. For two decades, the parties were engaged in a successful business relationship whereby defendant provided its products to plaintiff. Id. at ¶¶ 8-9.
In 2002, plaintiff was awarded a contract by the State of Texas, under the terms of which it would provide Texas with 4,000 temperature chart recorders. Id. at ¶¶ 11-13. Defendant provided the product — its "SL4 Recorder" — to plaintiff, and plaintiff supplied the recorders to the State of Texas in increments of 250, beginning August 31, 2002. Id. at ¶¶ 14-15. As part of its distribution practice, plaintiff engaged in "private labeling," a process by which it placed its own trademark and identifying information on Dickson recorders before supplying them to customers. Id. ¶ 17. Plaintiff contends that defendant was aware of, and had consented to, this practice. Id. ¶ 18. Defendant denies this assertion. Def.'s Am. Answ. to Am. Compl., ¶ 18.
Following a change in defendant's billing practices, plaintiff was no longer financially able to fulfill the Texas contract with Dickson recorders. Am. Compl., ¶¶ 18-20. As a result, plaintiff and defendant ceased to do business with one another and plaintiff began marketing the "Capp Recorder" instead, to its Texas client as well as to potential customers in this district and around the country. Id. ¶ 22. Defendant claims that this recorder was designed to look identical to its SL4 Recorder, and has asserted counterclaims under the Lanham Act to this effect. Def.'s Am. Answ. to Am. Compl., ¶ 22; Def.'s Counterclaim Third Party Compl., ¶¶ 62-156.
In 2003, the Washington State Department of Health requested bid submissions for a contract to supply temperature chart recorders. Am. Compl. ¶ 23. Both plaintiff and defendant submitted bids, and defendant was awarded the contract. Id. ¶¶ 24-27. Plaintiff protested this award and was eventually given the contract instead of defendant, at which point defendant then protested as well. Id. at ¶¶ 28, 36-37. The State of Washington suspended implementation of its contract pending evaluation of the protests, and has since re-awarded the contract to defendant. Id. ¶ 39. During this bidding and protest process, plaintiff avers that it received threatening and disparaging letters from defendant. Id. ¶¶ 29-34. Plaintiff also contends that defendant sent similarly disparaging letters to Capp customers in this district, although the existence and substance of these letters are in dispute. Id. ¶ 35.
This court previously issued an opinion denying defendant's motion to transfer this action to the Western District of Washington pursuant to 28 U.S.C. § 1404(a). See Capp, Inc. v. Dickson/Unigage, Inc., 2004 WL 339672 (E.D. Pa. Feb. 19, 2004).
Defendant filed an amended answer together with amended counterclaims and a thirdparty complaint. Plaintiff then moved to dismiss counts 6, 7, 8, 10, 12, 13, 15 and 20 of defendant's amended counterclaims, which defendant opposed. While plaintiff's motion to dismiss was pending, defendant filed a motion for leave to file a second amended answer and counterclaims. Defendant's proposed second amended answer and counterclaims would render moot significant portions of plaintiff's motion to dismiss; indeed, only three substantive counts remain in dispute. I address those counts below.
Discussion
Leave to amend "shall be freely given when justice so requires." Fed.R.Civ.P. 15. Although the decision to grant leave to amend is committed to the trial court's discretion, see Rolo v. City Investing Co. Liquidating Trust, 155 F. 3d 644, 654 (3d Cir. 1998), "it is an abuse of discretion to deny leave to amend unless `plaintiff's delay in seeking amendment is undue, made in bad faith, prejudicial to the opposing party, or [the amendment] fails to cure the jurisdictional defect.'" Alvin v. Suzuki, 227 F.3d 107, 121 (3d Cir. 2000) (quoting Berkshire Fashions, Inc. v. M.V. Hakusan II, 954 F. 2d 874, 886 (3d Cir. 1992)); see also Foman v. Davis, 371 U.S. 178, 182 (1962) (holding that it is abuse of discretion to deny leave to amend absent a clear or declared reason such as delay, bad faith, prejudice, or a repeated failure to cure a problem in the complaint). Leave to amend will also be denied where amendment would be futile. See Alvin, 227 F.3d at 121 (citing Smith v. NCAA, 139 F.3d 180, 190 (3d Cir. 1998) rev'd on other grounds, 525 U.S. 459 (1999)). "Futility," Capp's ground for opposing defendant's proposed amendments in the instant case, means that the counterclaim complaint, as amended, would not survive a motion to dismiss for failure to state a claim upon which relief could be granted, based upon the same standard of legal sufficiency applied to motions brought under Rule 12(b)(6). See In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997).
Defendant seeks to amend its counterclaims. References hereafter to "complaint," "counterclaim" and "counterclaim complaint" all refer to the same document.
In ruling on a motion to dismiss for failure to state a claim upon which relief may be granted, the court must accept as true all well-pleaded allegations of fact in the complaint and any reasonable inferences that may be drawn therefrom, in order to determine whether "under any reasonable reading of the pleadings, the [complainant] may be entitled to relief." Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996) (citations omitted); Colburn v. Upper Darby Township, 838 F.2d 663, 665-66 (3d Cir. 1988), cert. denied, 489 U.S. 1065 (1989) (citations omitted). Although the court must construe the complaint in the light most favorable to the complainant, it need not accept as true legal conclusions or unwarranted factual inferences. See Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Courts will grant a 12(b)(6) motion to dismiss "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229 (1984).
A. Dickson's Counterclaim for False Representation in Violation of 15 U.S.C. § 1125.
Dickson's proposed second amended counterclaim 6 asserts a claim against Capp for false and/or misleading representation of fact under 15 U.S.C. § 1125. Dickson alleges that Capp's bid submission to the State of Washington included a picture of the Dickson recorder despite the fact that Capp did not intend to supply Washington with Dickson recorders. Def.'s 2d Am. Countercls., ¶¶ 172-73 (attached to Def.'s Mot. for Leave (Doc. #40) as Ex. 1). Dickson also alleges that Capp has distributed advertisements for its own recorder, to customers and potential customers, which include pictures of the Dickson recorder. Id. ¶ 175.
The Lanham Act "prohibits a business from making false or misleading statements about its products." J M Turner, Inc. v. Applied Bolting Tech. Prods., Inc., 1997 WL 83766, *2 (E.D. Pa. Feb. 24, 1997) (citing U.S. Healthcare, Inc. v. Blue Cross of Greater Phila., 898 F.2d 914, 922-23 (3d Cir. 1990) cert. denied, 498 U.S. 816 (1990)). To establish a Lanham Act claim based on false or misleading representation of a product, the plaintiff must show:
Section 43(a)(1)(B) of the Lanham Act provides that "Any person who, on or in connection with any goods or services . . ., uses in commerce any . . . false or misleading description of fact, or false or misleading representation of fact, which . . . in commercial advertising or promotion, misrepresents the nature, characteristics, [or] qualities . . . of his or her or another person's goods, services or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damages by such act." 15 U.S.C. § 1125(a).
1) that the defendant has made false or misleading statements as to his own product or another's;
2) that there is actual deception or at least a tendency to deceive a substantial portion of the intended audience;
3) that the deception is material in that it is likely to influence purchasing decisions;
4) that the advertised goods traveled in interstate commerce; and
5) that there is a likelihood of injury to the plaintiff in terms of declining sales, loss of good will, etc.Johnson Johnson-Merck Consumer Pharms. Co. v. Rhone-Poulenc Rorer Pharms., Inc., 19 F.3d 125, 129 (3d Cir. 1994) (citing U.S. Healthcare, 898 F.2d at 922-23). If a plaintiff proves that the challenged representation is "literally false," however, the court need not consider whether the buying public was misled. Id. (citing Sandoz Pharms. Corp. v. Richardson-Vicks, Inc., 735 F. Supp. 597, 600 (D. Del. 1989), aff'd, 902 F.2d 222 (3d Cir. 1990)). Thus, Dickson "must prove either literal falsityor consumer confusion, but not both." Castrol Inc. v. Pennzoil Co., 987 F.2d 939, 943 (3d Cir. 1993) (citations omitted) (emphasis in original).
Capp argues that Dickson's proposed counterclaim fails to state a cause of action under the Lanham Act because it does not assert that Capp's allegedly false advertisements were material to, or had any impact upon, the State of Washington's purchasing decisions; because Dickson did not allege confusion on the part of Washington State; and because Dickson suffered no damages as a result of such confusion as it was ultimately awarded the Washington contract. Pl.'s Opp. to Def.'s Mot. for Leave at 8-9.
In Dickson's proposed second amended counterclaims, it alleges that Capp's advertisement was false, see Def.'s 2d Am. Countercls., ¶¶ 172-74, thus there is no need to allege that the State of Washington and other potential buyers were confused, as suggested by Capp. Moreover, it is clear from the complaint that Dickson believes Capp's misrepresentation to have been material to the purchasing decisions made by potential customers; indeed, the thrust of Dickson's counterclaims is that Capp is unfairly benefitting from the longstanding good reputation of Dickson Recorders by suggesting to potential buyers that Capp will be providing a Dickson product. While Dickson ultimately was awarded the Washington contract, it alleges that other customers and potential customers also received Capp's advertisement, thus resulting in damages and potential damages to Dickson's business reputation. Def.'s 2d Am. Countercls., ¶¶ 96, 175.
In cases involving a competitor's alleged use of photographs of a complainant's product in its advertising, "a cause of action under section 43(a) is made out by proof that defendant (1) falsely represented that the photograph of his competitor's product was his own and (2) that the pictured product is not identical to the one the defendant is prepared to deliver." Supelco, Inc. v. Alltech Assocs., Inc., 1986 WL 9282, *4 (E.D. Pa. Aug. 27, 1986) (citing 15 U.S.C. § 1125(a) and L'Aiglon Apparel, Inc. v. Lana Lobell, Inc., 214 F.2d 649, 650-51 (3d Cir. 1954)). Dickson has clearly alleged such a claim in its counterclaim complaint by asserting that Capp sought state contracts by advertising with photographs of Dickson products. Accordingly, Dickson's claim will survive a 12(b)(6) motion to dismiss and therefore is not futile.
B. Dickson's Counterclaim for Unjust Enrichment
In its proposed counterclaim 8 (formerly counterclaim 13), Dickson alleges that Capp was unjustly enriched when Dickson provided calibration certificates to the State of Texas. According to Dickson, in supplying temperature chart recorders to the State of Texas Capp improperly altered the calibration certificates originally provided by Dickson. Def.'s 2d Am. Countercls., ¶¶ 26-27. When Dickson learned that Capp had provided the State of Texas with altered calibration certificates containing false information regarding Dickson recorders, it contacted the State of Texas, was asked to supply 4,000 new calibration certificates, and did so at no charge. Id. at ¶¶ 40-41. Because Capp was able to retain its Texas contract due to Dickson's replacement of the calibration certificates, see id. ¶ 184, Dickson alleges that Capp was unjustly enriched.
Under Pennsylvania law, a claim for unjust enrichment requires three elements: "benefits conferred on one party by another, appreciation of such benefits by the recipient, and acceptance and retention of these benefits under such circumstances that it would be inequitable [or unjust] for the recipient to retain the benefits without payment of value." Allegheny Gen. Hosp. v. Philip Morris, Inc., 228 F.3d 429, 427 (3d Cir. 2000) (citing 16 Summary of Pa. Jur. 2d Commercial Law § 2.2); see also Temple Univ. Hosp. Inc. v. Healthcare Mgmt. Alternatives, Inc., 832 A.2d 501, 507 (Pa.Super. 2003) (same).
Neither party has addressed the issue of choice of law. Because both plaintiff and defendant cite Pennsylvania law, however — and because neither disputes that Pennsylvania law applies — I too will apply Pennsylvania law.
Capp claims that Dickson contacted the State of Texas to replace the calibration certificates as a means of securing re-calibration business in the future. See Pl.'s Mot. Dismiss at 22. Because Dickson was acting for its own benefit, argues Capp, it should not be permitted to recover on a theory of unjust enrichment. Id. The rationale behind Dickson's decision to contact Texas, however, is an issue of fact to be determined upon completion of discovery or by a jury. From the face of Dickson's counterclaim complaint, it has alleged facts sufficient to support a claim for unjust enrichment. It claims that Capp received the benefit of a continuing business relationship with Texas, due to Dickson's provision of calibration certificates, and that Capp's retention of these benefits — in light of its allegedly improper private labeling and certificate alteration — would be unjust. Assuming the facts alleged by Dickson are true, as I must when evaluating the legal sufficiency of a complaint, Dickson has stated a claim for unjust enrichment.
C. Dickson's Counterclaim for Tortious Interference
In its proposed counterclaim 9 (formerly counterclaim 15), Dickson alleges that Capp's alteration of the calibration certificates constituted tortious interference with prospective contractual relations. According to Dickson, Capp's private labeling of Dickson recorders involved altering the calibration certificates which Dickson had originally provided to accompany the recorders. Def.'s 2d Am. Countercls., ¶ 191. Because Capp's alteration to the calibration certificate included replacing the Dickson re-order form with a Capp re-order form, Dickson claims that Capp ensured that it, rather than Dickson, would receive the re-calibration contracts for the Dickson recorders. Id. ¶¶ 193-99. Dickson's alleged damages include $2,980,000.00 in lost re-calibration sales. Id. ¶ 203.
Under Pennsylvania law, tortious interference with prospective contractual relations requires plaintiff to establish four elements:
(1) a prospective contractual relation; (2) the purpose or intent to harm the plaintiff by preventing the relation from occurring; (3) the absence of privilege or justification on the part of the defendant; (4) the occasioning of actual damage resulting from the defendant's conduct.Thompson Coal Co. v. Pike Coal Co., 488 Pa. 198, 208, 412 A.2d 466, 471 (Pa. 1979). Put another way, plaintiff must prove that "but for defendant[s'] wrongful acts, it is reasonably probable that a contract would have been formed." Advanced Power Sys., Inc. v. Hi-Tech Sys., Inc., 1992 WL 97826, *11 (E.D. Pa. Apr. 30, 1992) (citing SHV Coal, Inc. v. Cont'l Grain Co., 376 Pa. Super. 241 (1988)); see also Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 530 (3d Cir. 1998) (stating that a finding of "a reasonable likelihood that the relationship would have occurred but for the interference of the defendant" constitutes a fifth element required to establish the tort under Pennsylvania law).
To prove the existence of the first element, a prospective contractual relationship, plaintiff must present this court with facts sufficient to give rise to a "reasonable probability that particular anticipated contracts would have been entered into." Fresh Made, Inc. v. Lifeway Foods, Inc., 2002 WL 31246922, *12 (E.D. Pa. Aug. 9, 2002). Such probability may arise "from an unenforceable express agreement or an offer, or where there is a reasonable probability that a contract will arise from the parties' current dealings. . . . [M]erely pointing to an existing business relationship or past dealings does not reach this level of probability." Id. (citations and quotations omitted).
It is precisely this type of "existing business relationship" and "past dealings" upon which Dickson relies in order to support its tortious interference claim. Dickson alleges that because owners of Dickson recorders usually purchase calibrations at least once a year, the state of Texas would have followed suit and that "Dickson would have made at least one recalibration sale to each of the purchasers of its recorders every other year for ten years." Def.'s 2d Am. Countercls. ¶ 194. While such a prediction may or may not come true, it fails to constitute a "prospective contract" in the context of a tortious interference claim. Dickson has neither alleged nor even suggested an existing nor a prospective contract with any degree of precision. Furthermore, Dickson has not demonstrated a reasonable probability that but for Capp's alleged interference, third parties would have entered into contract with Dickson.
Significantly, Dickson's counterclaim depends upon its theory that had Capp not altered the calibration certificates, the owners of the Dickson recorder would have contracted with Dickson for recalibration. Dickson admits, however, that it provided Texas with proper calibration certificates upon learning that Capp had altered the originals. The state of Texas, therefore, had access to Dickson's calibration re-order form and there was nothing to prevent it from ordering through Dickson.
Dickson cannot, therefore, state a claim for tortious interference against Capp because it has failed to allege the existence of a specific prospective contractual relation. Dickson's proposed counterclaim 9, therefore, is futile and cannot survive a motion to dismiss. Dickson's motion for leave to amend its counterclaims will be denied, therefore, with respect to counterclaim 9.
Conclusion
Defendant's motion for leave to file a second amended answer and counterclaims will be granted except as to proposed counterclaim 9. As a result, plaintiff's motion to dismiss the amended counterclaims will be dismissed as moot.
Order
And now, this ____ day of August, 2004, upon consideration of the motions before this court, it is hereby ORDERED that:1.) Plaintiff's Motion to Dismiss Defendant's Amended Counterclaims (Doc. #24) is DISMISSED as moot;
2.) Defendant's Motion for Leave to File a Second Amended Answer to the Amended Complaint, Affirmative Defenses, and Amended Counterclaims (Doc. #40) is GRANTED in part, as modified below;
a) Defendant's counterclaim 9 for tortious interference with contractual relations is DISMISSED;
b) Plaintiff's request to strike portions of defendant's Second Amended Answer is DENIED without prejudice to plaintiff's right to raise these issues at a later time;
c) By agreement counterclaim 12 of the proposed second amended answer and counterclaims is voluntarily DISMISSED;
3.) Defendant shall file its Second Amended Answer to the Amended Complaint, Affirmative Defenses, and Amended Counterclaims in accordance with Exhibit 1 to Document #40 (excepting counterclaim 9) within 10 days.