Opinion
Bankruptcy No. 01-37760DWS, Adversary No. 03-00022
May 22, 2003
MEMORANDUM OPINION
Before the Court is the Motion of Defendants Nike, Inc. ("Nike"), Nike USA, Inc.("Nike USA") and John Givens ("Givens") (referred to herein with defendants Nike and Nike USA as the "Nike Defendants") to Dismiss the Complaint Pursuant to Federal Rule of Civil Procedure 12(b)(6) (the "Motion"). For the reasons that follow, the Motion is granted in part and denied in part.
BACKGROUND
The Debtor, Sun Apparel Warehouse, Inc. (hereinafter the "Debtor," "Plaintiff," or "Sun"), is in the business of selling urban and athletic footwear and apparel. The Debtor is wholly owned and operated by the co-plaintiff in this adversary proceeding, Jagjit Chawla ("Chawla"). The Debtor filed its Chapter 11 petition (the "Petition") on December 21, 2001. On October 11, 2002, the Debtor filed its First Amended Plan of Reorganization (the "Plan"), which was confirmed by Order of this Court dated November 26, 2002, over the objection of the Nike Defendants.
I shall take judicial notice of the docket entries in this case as well as in the main bankruptcy case and the prior adversary action referred to below. Fed.R.Evid. 201, incorporated in these proceedings by F.R.Bankr.P. 9017. See Maritime Elec. Co., Inc. v. United Jersey Bank, 959 F.2d 1194, 1200 n. 3 (3d Cir. 1991); Levine v. Egidi, 1993 WL 69146, at *2 (N.D. Ill. 1993); In re Paolino, 1991 WL 284107, at *12 n. 19 (Bankr. E.D. Pa. 1991); see generally In re Palms Associates Ltd., 61 F.3d 197 (3d Cir. 1995).
At that time of confirmation, the Debtor's most recently amended Schedule B disclosed the existence of a cause of action by Sun against Nike and Givens, Sun Apparel v. Nike, Adversary Number 02-598 ("Sun I"). That lawsuit was originated by Sun on February 27, 2001 in the Court of Common Pleas, Philadelphia, Pennsylvania and subsequently removed to this Court by Nike. The potential proceeds of Sun I were not dedicated to funding of the Plan, nor was the lawsuit specifically mentioned in the related disclosure statement which retained all causes of action for the reorganized Debtor, with some exceptions not relevant here. Sun I was voluntarily dismissed on March 6, 2003 pursuant to Sun's Motion to Compromise Controversy Pursuant to Fed.R.Bank.P. 9019.
The instant adversary proceeding (hereinafter "Sun II") was brought by Sun and Chawla (collectively, the "Sun Plaintiffs") against the Nike Defendants. Like its predecessor, it was originally brought in the Court of Common Pleas of Philadelphia, Pennsylvania, in this case on December 17, 2002. The Nike Defendants removed Sun II to the District Court for the Eastern District of Pennsylvania, which in turn transferred it to this Court. Sun II contains many of the same relevant factual allegations as Sun I, namely that:
(1) on October 13, 2000, Nike instituted a trademark infringement and counterfeiting action against World Apparel Products Co. ("World") and several other defendants, including Sun (the "Brandmania Suit"). Sun I Compl. ¶ 23; Sun II Compl. ¶ 18;
Sun I does not alleges these facts against Nike USA, which was added as a defendant in Sun II so these facts are not technically identical. However, the distinction is not relevant for the purposes of determining the Motion, nor is it one that has been raised by the parties.
World is owned and operated by Chawla's brother. Sun I Complaint ¶ 24; Sun II Compl. ¶ 18.
(2) notwithstanding the Brandmania Suit, Nike and Sun maintained a usual and customary business relationship that they had held since January 2000, until December 2000. Sun I Compl. ¶ 27; Sun II Compl. ¶ 17;
Sun's relationship with Nike did not begin until January 2000, when Sun merged with Athlete's International ("Athletes") and acquired Athlete's account with Nike. Sun I Compl. ¶¶ 8-12, 16; Sun II Compl. ¶¶ 14-17. Prior the merger, Athlete's was operated by Chawla's brother. Sun II Compl. ¶ 14 n. 2.
(3) in December 2000, Nike, through its sales representative, Givens, generally avoided Sun's calls and failed to allow Sun to inspect the new product line for Summer/Fall 2001. Sun I Compl. ¶¶ 29-30, 34; Sun II Compl. ¶¶ 21, 24;
(4) on December 18, 2000, Nike sent a letter to World indicating that it was suspending its relationship with World. Sun I Compl. ¶¶ 31-32; Sun II Compl. ¶¶ 22-23. No similar letter was sent to Sun. Rather, its first notice that its account had been suspended was on December 20, 2000, when two of its buyers were turned away from Nike's product showroom. Sun I Compl. ¶¶ 33-34; Sun II. Compl. ¶¶ 23-24; and
Interestingly, though referencing Nike's relationship with World, the letter is addressed to Chawla and was sent to an address where Sun had previously had offices. Sun II Compl. ¶ 13.
(5) Sun had already placed orders for the spring 2001, which Nike had confirmed but subsequently failed to deliver. Sun I Compl. ¶¶ 19-20, 35; Sun II Compl. ¶¶ 25.
The Sun I Complaint seeks damages for breach of contract and misrepresentation arising from Nike's failure to deliver the Spring 2001 orders and Givens' alleged failure to disclose Nike's plans to end its relationship with Sun. The Sun I Complaint identifies the specific purchase orders and acknowledgments that constitute the breached contracts, i.e., purchase orders submitted from May to December 2000 for delivery of goods in the spring of 2001. Sun I Compl. ¶¶ 19-20, 35. The Debtor's Schedule B values the Sun I claims in excess of $700,000.
The Sun II Complaint, while alleging the same basic facts enumerated above, goes on to allege further conduct by the Nike Defendants after their alleged failure to deliver goods: (1) when it became apparent that the Nike Defendants would not deal with Sun, Chawla sought a buyer for his shares in Sun; (2) between March and August 2001, Chawla entered into negotiations to sell all his shares in Sun to an individual named John Lee ("Lee") and reached an agreement to do so by early August 2001 (the "Lee Transaction"); (3) the Lee Transaction was contingent upon Lee being able to sell Nike products at the Sun stores which had previously sold those products; (4) the Nike Defendants refused to allow Lee to sell Nike products from Sun stores despite the fact that Lee had his own account with Nike; (5) the Nike Defendants told Lee that he shouldn't do business with the Sun Plaintiffs and words to the effect that the Sun Plaintiffs are "bad and dishonest people and counterfeiters"; (6) that Lee thereafter abandoned the Lee Transaction; and (7) that Chawla was unable to find any other buyer. Sun II Compl. ¶¶ 32-37. Sun II further alleges that: (1) while refusing to grant Lee permission to sell their products from Sun locations, the Nike Defendants nevertheless provided incentives for Lee to open new locations selling Nike products near existing Sun locations; and (2) the Nike Defendants promoted and provided incentives for other retailers to carry or expand their line of Nike products, with some and/or all of those locations also being in close proximity and direct competition with Sun. Sun II Compl. ¶¶ 43-44, 59-62.
The Sun II Complaint does not allege breach of contract. Instead, it alleges three distinct claims sounding in tort. Count I alleges intentional interference with contractual relations, specifically that Nike interfered with and caused the failure of the Lee Transaction. Count II also alleges intentional interference with contractual relations, namely that Nike's actions caused Sun to lose sales and customers. Count III alleges defamation, namely that Nike and/or Givens made statements to Lee and other "different parties" on "numerous occasions" to the effect that Sun and Chawla were dishonest and counterfeiters. TheSun II. Complaint seeks damages in excess of $11 million.
While Count II is actually titled interference with business relations, this is a distinction without significance; it is the same tort under Pennsylvania law. See infra § II.B.
Of relevance here is the uncontested fact that the existence of the claims asserted in Sun II were never disclosed in the main bankruptcy case prior to confirmation of the Plan. No reference to such claims appears in the Debtor's schedules or disclosures prior to confirmation. Nevertheless, before the Plan was substantially consummated, the Debtor filed a Motion to Modify its First Amended Plan ("the Plan Modification Motion"). The sole purpose of the Plan Modification Motion was to allow the reorganized Debtor to pursue the Sun II litigation for the benefit of creditors of the bankruptcy estate. The Fourth Amended Plan (hereinafter the "New Plan") was filed on January 17, 2003 and approved by the Court on February 12, 2003 pursuant to 11 U.S.C. § 1127 (b). The New Plan adds an additional pro rata distribution to non-insider unsecured creditors from the "net proceeds" of the Sun II litigation.
Section 1127 of the Bankruptcy Code states, in relevant part:
(b) The proponent of a plan or the reorganized debtor may modify such plan at any time after confirmation of such plan and before substantial consummation of such plan, but may not modify such plan so that such plan as modified fails to meet the requirements of sections 1122 and 1123 of this title. Such plan as modified under this subsection becomes the plan only if circumstances warrant such modification and the court, after notice and a hearing, confirms such plan as modified, under section 1129 of this title.
11 U.S.C. § 1127 (b). I granted the Plan Modification Motion without requiring a revised disclosure statement or resolicitation of acceptances because the modification did not adversely affect any creditor. See House Rep. No. 95-595, 95th Cong., 1st Sess. 411 (1977), U.S. Code Cong. Admin. News 1978, pp. 5787, 6367 ("Of course, if the modification were sufficiently minor, the court might determine that additional disclosure was not required under the circumstances"). See also In re American Solar King Corp., 90 B.R. 808, (Bankr. W.D. Tex. 1988) ("Further disclosure occurs only when and to the extent that the debtor intends to solicit votes from previously dissenting creditors or when the modification materially and adversely impacts parties who previously voted for the plan."). The New Plan provides a potential additional payment to unsecured creditors with no cost to the estate. See infra.
The Nike Defendants strenuously objected to the Plan Modification Motion, raising several defenses to the Sun II Complaint. As I noted at the hearing on the Plan Modification Motion, such defenses are more properly asserted in a motion or responsive pleading to the Complaint itself and not in an objection to the modification of the Plan, where the Court is only concerned with adverse effects upon creditors. This Motion puts before the Court certain of those objections.
"Net proceeds" is defined in Article 5 of the Plan and contemplates a sharing of the recovery with Chawla.
DISCUSSION
Fed.R.Civ.P. 12(b)(6), applicable here pursuant to Rule 7012 of the Federal Rules of Bankruptcy Procedure ("F.R.Bankr.P."), controls the dismissal of actions for failing to state claims for which relief can be granted. In considering a Rule 12(b)(6) motion to dismiss, a court must accept all allegations in the complaint, and all reasonable inferences that can be drawn therefrom, as true and view them in the light most favorable to the nonmoving party. See Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989) (citations omitted). A complaint must not be dismissed for failing to state a claim unless it appears beyond reasonable doubt that plaintiffs can prove no set of facts in support of their claim that would entitle them to relief See City of Philadelphia v. Lead Industries Ass'n, Inc., 994 F.2d 112 (3d Cir. 1993) ( citing Conley v. Gibson, 355 U.S. 41 (1957)). As a general rule, the court may only consider the pleading which is attacked the by Rule 12(b)(6) motion in determining the sufficiency of the pleading. Pryor v. National Collegiate Athletic Ass'n., 288 F.3d 548, 560 (3d Cir. 2002). However, the Court may also consider documents that the defendant attaches to the motion, if they are referred to in the plaintiffs complaint and are central to the claim, as well as facts to which the Court may take judicial notice. Id.
If a motion to dismiss under Fed.R.Civ.P. 12(b)(6) is granted, then ordinarily the plaintiff should be provided an opportunity to amend the complaint if it appears that the deficiencies can be corrected by amendment. See 2A J. Moore, Moore's Federal Practice ¶ 12.07[2.-5], p. 12-99 (2d ed. 1994); see also Fed.R.Civ.P. 15(a).
With this standard as my guide, I now address the Motion. The Nike Defendants have asserted a number of bases for dismissal, attacking each and every count of the Complaint individually and the Complaint as a whole. It appears to me to be more logical to begin with an examination of Nike's attack on the Complaint as a whole, which may render the Count-specific arguments moot.
I.
The Nike Defendants contend that Sun II is barred by principles of equitable estoppel and judicial estoppel. As an initial matter, I note that estoppel, like a statute of limitations, is an affirmative defense not technically allowed under the language of Rule 12(b). However, the law of this circuit (the so-called "Third Circuit Rule") permits any affirmative defense listed in Fed.R.Civ.P. 8(c) to be pled in a 12(b)(6) motion if the affirmative defense appears on the face of the complaint. Robinson v. Johnson, 313 F.3d 128, 135 n. 3 (3d Cir. 2002) (citations omitted). Alternatively, the Nike Defendants contend that the dismissal with prejudice of Sun I precludes the prosecution of Sun II which is for all intents and purposes a recasting of the dismissed action.
Rule 12(b) states in relevant part:
Every defense, in law or fact, to a claim for relief in any pleading, whether a claim, counterclaim, cross-claim, or third-party claim, shall be asserted in the responsive pleading thereto if one is required, except that the following defenses may at the option of the pleader be made by motion: (1) lack of jurisdiction over the subject matter, (2) lack of jurisdiction over the person, (3) improper venue, (4) insufficiency of process, (5) insufficiency of service of process, (6) failure to state a claim upon which relief can be granted, (7) failure to join a party under Rule 19. A motion making any of these defenses shall be made before pleading if a further pleading is permitted.
Fed.R.Civ.P. 12(b).
Rule 8(c) requires that a defendant plead an affirmative defense, such as a statute of limitations or estoppel defense, in his answer: "In pleading to a preceding pleading, a party shall set forth affirmatively . . . estoppel . . . statute of limitations . . . and any other matter constituting an avoidance or affirmative defense." Fed.R.Civ.P. 8(c); F.R.Bankr.P. 7008.
A. Equitable and Judicial Estoppel
In the case cited by the Nike Defendants in support of their estoppel defense, Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414 (3d Cir. 1988), the debtor commenced a post-confirmation action against its lender alleging, inter alia breach of contract and misrepresentation for conduct that occurred prior to the bankruptcy filing. None of these claims had been disclosed in the debtor's bankruptcy schedules, plan or disclosure statement. The Third Circuit Court of Appeals recognized that candid disclosure and finality are pivotal concepts in a reorganization case and stated that the result of a debtor's failure to disclose any litigation likely to occur in a non-bankruptcy context may trigger the application of equitable estoppel against a subsequent attempt to prosecute the actions. Id. at 417.
While the legal principles espoused in Oneida are, of course, binding upon this Court, I find that case to be factually distinguishable from the case sub judice. A fundamental element of equitable estoppel is reliance. In re RFE Industries, Inc., 283 F.3d 159, 164 (3d Cir. 2002). Such reliance was present in Oneida, where the debtor obtained the lender's vote in favor of the plan after negotiating and stipulating to the lender's claim prior to confirmation. The lender clearly relied on its stipulation with that debtor and the finality of the confirmed plan.Oneida, 848 F.2d at 418. Conversely, the Nike Defendants did not reach any agreement with Sun regarding potential claims against them nor did they vote for the Plan. Indeed, the Nike Defendants vociferously opposed confirmation of the Plan, even when existence of the Sun II claims was still undisclosed. I cannot say, based upon the Complaint and judicially noticeable facts, that the Nike Defendants have shown their requisite reliance upon Sun's nondisclosure so as to apply equitable estoppel.
"[A party] claiming equitable estoppel must establish that (1) a representation of fact was made to it, (2) upon which [it] had a right to rely, and (3) the denial of the represented fact by the party making the representation would result in injury to the relying party." Id. As I find reliance to be absent here, I need not address the other elements.
My own prior decision in H L Developers, Inc. v. Arvida/JMB Partners (In re H L Developers), 178 B.R. 71 (Bankr. E.D. Pa. 1994), is equally distinguishable. In that case, there was reliance on the part of the movant seeking equitable estoppel. Id. at 74.
The Nike Defendants also raise the doctrine of judicial estoppel, also recognized by the Oneida court:
This doctrine, distinct from that of equitable estoppel, applies to preclude a party from assuming a position in a legal proceeding inconsistent with one previously asserted. Judicial estoppel looks to the connection between the litigant and the judicial system while equitable estoppel focuses on the relationship between the parties to the prior litigation.
Id. at 419. In short, the doctrine is intended to prevent parties from playing "fast and loose" with the court by asserting inconsistent positions. Ryan Operations, G.P. v. Santium Midwest Lumber Co., 81 F.3d 355, 361 (3d Cir. 1995).
Any application of judicial estoppel must be preceded by a three-part inquiry: (1) has the party to be estopped taken two positions that are irreconcilably inconsistent; (2) has that party changed his or her position in bad faith, i.e., with intent to play fast and loose with the court; and (3) is there is no lesser sanction available under either statute or the applicable federal rules of procedure? Id.; Montrose Medical Group Participating Savings Plan v. Bulger, 243 F.3d 773, 779-80 (3d Cir. 2001).
While Ryan references a two-part inquiry, the Court of Appeals recognized this omission in Montrose, and stressed that the third prong is in fact an integral part of the analysis since the court may not employ judicial estoppel unless it is "tailored to address the harm identified". Id. at 780 n. 4.
The Nike Defendants have not specifically enunciated what irreconcilably inconsistent positions Sun has taken. However, they assert that the Debtor had the duty to disclose all its potential claims and that judicial estoppel should therefore keep it from asserting the claims here, where all the facts alleged in the Sun II Complaint clearly happened prior to Sun's bankruptcy. I interpret their argument to be that Sun's failure to disclose the Sun II claims prior to confirmation of the Plan is tantamount to an assertion that it had no such claims.
The Third Circuit Court of Appeals has twice refrained from addressing whether nondisclosure of a known potential claim, standing alone, can support a finding that a debtor has asserted inconsistent positions in a subsequent lawsuit on those claims within the meaning of the judicial estoppel doctrine. Oneida, 848 F.2d at 419; Ryan 81 F.3d at 362. I find I am likewise constrained from reaching this question since I am unable on this record to make the requisite finding of bad faith. The Nike Defendants cite to nothing in the Sun II Complaint or to any fact to which I may take judicial notice, as they must, to support a finding that the Debtor is trying to play fast and loose with the Court. See Robinson v. Johnson, 313 F.3d at 135; Rycoline Prods., Inc. v. C W Unlimited, 109 F.3d 883, 886 (3d Cir. 1997) (affirmative defense must be apparent on the face of the complaint to be subject to a Rule 12(b)(6) motion to dismiss). Even assuming that Sun's failure to disclose the Sun II claims prior to confirmation meets the first element of the Third Circuit's test, a finding as to Sun's motivation would be pure speculation at this point, and accordingly the second element is not satisfied. Thus, I also cannot conclude, based on the Complaint and judicially noticeable facts, that the Complaint should be dismissed on the grounds of equitable or judicial estoppel.
B. Gist of the Case Doctrine
Pennsylvania's gist of the case doctrine, holds that where tort claims arise in the context of contractual agreement(s), the tort claim is maintainable only where the contract is "collateral" to the conduct that is tortious. Sunquest Information Systems, Inc. v. Dean Witter Reynolds, 40 F. Supp.2d 644, 651 (W.D. Pa. 1999); Etoll, Inc. v. Elias/Savion Advertising, Inc., 811 A.2d 10, 14 (Pa.Super. 2002). The doctrine is designed to maintain the conceptual distinction between breach of contract claims and tort claims. Id. In short, a party cannot simply recast an ordinary breach of contract claim into a tort claim and in so doing, create a separate and distinct cause of action.
To support its assertion that the entire Sun II Complaint should be dismissed under this doctrine, the Nike Defendants focus upon on a single paragraph in Count II (Interference with Business Relations) of the Sun II complaint:
Defendants did induce and purposefully cause third persons, namely the customers and prospective customers of Sun, not to enter into or continue business relations with Sun by improperly depriving Sun of Nike products which were a major basis for Sun's existing customer base . . .
Sun II Compl. ¶ 56 (emphasis added). To the extent that Sun is asserting that being deprived of Nike products (which Sun was presumably only entitled to by contract) is a tort claim, this count clearly implicates the gist of the case doctrine. It was this same deprivation of Nike products which gave rise to the breach of contract claims in Sun I. However, Sun II consists of more than this single paragraph. The gist of the action doctrine requires the court to look at the entire action.Etoll, 811 A.2d at 14. Sun II alleges conduct not pled in Sun I that is clearly collateral to the contractual duty of the Nike Defendants: (1) their interference with the Lee Transaction (Count I); (2) their scheme to promote Sun's competitors, including John Lee, to sell Nike products and to provide incentives for Lee and other competitors to sell in close proximity to Sun (Count II); and (3) their defamatory statements (Count III). While a very small portion of Sun II is a recasting of breach of contract claims, the gist — i.e. the essence — of Sun II is not the same as Sun I so as to warrant dismissal of the entire Complaint.
II.
Having determined that the Nike Defendants' bases for dismissing the Complaint as a whole are unwarranted, I now turn to the individual counts and the count-specific bases for dismissal.
A. Interference with Contractual Relations (Count I)
A claim for intentional interference with contractual relations under Pennsylvania law is governed by the Restatement of Torts § 766.Thompson Coal Co. v. Pike Coal Co., 412 A.2d 466, 470 (Pa. 1979). The parties agree as to the basic elements of this claim:
(1) the existence of a contractual, or prospective contractual relation between the complainant and a third party;
(2) purposeful action on the part of the defendant, specifically intended to harm the existing relation, or to prevent a prospective relation from occurring;
(3) the absence of privilege or justification on the part of the defendant; and
(4) the occasioning of actual legal damage as a result of the defendant's conduct.
Remick v. Manfredy, 238 F.3d 248, 263 (3d Cir. 2001) (citing Pelagatti v. Cohen, 536 A.2d 1337, 1343 (Pa.Super. 1987)); Thompson, 410 A.2d at 470. The Nike Defendants move to dismiss Count I pursuant to Rule 12(b)(6), arguing that the Plaintiffs have failed to meet: (1) the first element by failing to allege a sufficiently concrete contract (i.e. provide sufficient facts as to the specific negotiations and the terms of the alleged Lee Transaction); (2) the third element by failing to allege any wrongful or improper means employed by the Nike Defendants; and (3) the fourth element by failing to allege facts showing that the deal would have occurred but for the Nike Defendants' acts. For the reasons below, I find these arguments without merit.
In contending that the contract is not sufficiently pled, the Nike Defendants have imposed upon the Plaintiffs a higher pleading requirement than called for under the Federal Rules of Civil Procedure. All that is required in a complaint is "a short and plain statement of the claim showing that the pleader is entitled to relief" Fed.R.Civ.P.8(a)(2); F.R.Bankr.P. 7008(a). See also, Remick, 238 F.3d at 263-64. Plaintiffs have provided that here. The Complaint alleges that Chawla entered into negotiations with John Lee to purchase all of Chawla's shares in Sun for $1.5 million and that, by August, "a deal had been reached." Sun II Compl. ¶¶ 33-34. This is sufficient to put the Nike Defendants on notice as to what contract the Plaintiffs are alleging was interfered with. The details which the Nike Defendants seek will presumably be forthcoming in discovery.
The third element of this tort requires that the actor's conduct be unprivileged or improper. Buczek v. First Nat. Bank of Mifflintown, 531 A.2d 1122, 1124 (Pa.Super. 1987). The Nike Defendants assert that the Complaint simply alleges that they refused to do something, approve the Lee Transaction, which they were not required to do. To the contrary, the Complaint also alleges that part of the conduct which caused the failure of the Lee Transaction was the Nike Defendants' defamation — i.e. improper conduct — of the Plaintiffs. Id. ¶ 36. Thus, the third element has been sufficiently pled.
Finally, the Complaint also sufficiently puts the Nike Defendants on notice as to the proximate cause element. It alleges that "a deal had been reached" and that "based upon" the Nike Defendants' conduct, i.e. their defamatory statements and conflicting incentives, Lee abandoned the Lee Transaction. Id. ¶ 37. Count I sufficiently states a cause of action for intentional interference with contractual relations.
B. Interference with Business Relations and Unfair Competition (Count II)
Count II alleges that the conduct of the Nike Defendants induced Sun's "customers and prospective customers . . . not to enter into or continue business relations with Sun." Sun II Compl. ¶ 56. Following the conduct of the Nike Defendants, Sun's sales declined from the prior year. Id. ¶¶ 65, 67. Seeking dismissal of this count, the Nike Defendants first reassert their "gist of the case" argument raised earlier i.e. that Count II is simply a recasting of a breach of contract claim. In doing so, they focus only on paragraphs 56-59 of the Complaint, which discuss the Nike Defendants' alleged failure to supply goods. However, as discussed above, the Complaint alleges additional conduct that is collateral to their alleged contractual obligations: their scheme to promote Sun's competitors, including John Lee, to sell Nike products and to provide incentives for Lee and other competitors to sell in close proximity to Sun.
However, the Nike Defendants also contend that Plaintiffs fail to allege how the "scheme" to promote Nike products to other retailers is sufficiently improper or without justification, as required by the third element of the Restatement of Torts § 766.. I must agree with this argument. Presumably Nike has the right to choose not to do business with a party, particularly if it feels that party has counterfeited its goods. Absent any statute or common law doctrine that precludes the Nike Defendants from denying its products to Sun while promoting them to Sun's competitors, I fail to see how the "scheme" was improper or without justification.
Whether titled interference with "business relations" or "contractual relations," the tort and its elements are the same, both being governed by Restatement of Torts § 766. Thompson Coal Co. v. Pike Coal Co., 412 A.2d 466, 470 (Pa. 1979).
Perhaps there is such a law that makes the alleged "scheme" improper. Count II makes reference to "unfair competition." However, the Complaint simply does not state the basis of this "unfair competition" claim. Are Plaintiffs alleging a violation of federal law under the Sherman or Lanham Acts, a common law tort under Pennsylvania law, a violation of a Pennsylvania statute? Any attempt to answer would be pure speculation. A defendant should not have to speculate; it is entitled to a plain and clear statement of the claim against it. Count II will be dismissed for failure to comply with F.R.Bankr.P. 8(a). However, Plaintiffs may amend Count II of their complaint, if they can, to cure this deficiency by identifying their claim for unfair competition.
C. Defamation (Count III)
The Nike Defendants attack the defamation count on two bases. First they raise the statute of limitations defense, asserting that it is clear on the face of the Complaint as it must be on a 12(b)(6) motion, that the claim is time-barred. See Robinson v. Johnson, 313 F.3d 128, 135 n. 3 (3d Cir. 2002) (citations omitted). Pennsylvania law provides for a one-year statute of limitations for a defamation claim, 42 Pa. C.S.A. § 5523(1), which begins to run at the time the plaintiffs cause of action accrues, i.e. at the time a plaintiffs right to institute and maintain suit arises. 42 Pa. C.S.A. § 5502(a). The cause of action for defamation accrues on the date of publication of the defamatory statements. Morris v. Hoffa, 2002 WL 524037, at *2 (E.D. Pa. 2002).
As Sun II was filed in the state court on December 17, 2002, the relevant inquiry is whether the defamatory statements were published prior to December 17, 2001 (the "Cutoff Date"). The Nike Defendants argue that the Sun II Complaint only alleges defamatory statements prior to the Cut-Off Date:
It is believed and therefore averred that the foregoing defamatory remarks by the Nike Defendants were uttered on numerous occasions to many different parties. However, it is specifically averred that in or about the beginning of August 2001, the defendants, and particularly defendant Givens, directly uttered the defamatory word or words of similar import to John Lee and others in order to interfere with his business relationships with the Plaintiffs and to further support their interference with the Lee Transaction.
Sun II Compl. ¶ 69.
I must agree with the Nike Defendants. The above-quoted paragraph contains the Complaint's only temporal identification of the defamatory statements. Plaintiffs have pled themselves out of court by their identification of the statements as occurring in August 2001, prior to the Cut-Off Date. While the Complaint also states that the statements were made on "numerous occasions" and to "many different parties," there are no other facts pled which could allow me to infer that these other publications occurred after the Cut-Off Date as opposed to before. See Morris v. Hoffa, 2002 WL 524037, at *3 (E.D. Pa. Apr. 8, 2002) (mere allegation that untimely defamatory statement was "repeated approximately fourteen times" without identifying dates of repetition was insufficient to avoid statute of limitations). I cannot make inferences without a factual basis. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993) ("To defeat a motion to dismiss for failure to state claim, a pleader is required to include information sufficient to outline claim's elements or to permit drawing of inferences of their existence") (citing 5A Charles A. Wright Arthur R. Miller, Federal Practice and Procedure § 1357, at 340 (2d ed. 1990)).
However, this deficiency could be cured by amending the Complaint so as to definitively state that the other alleged publications occurred after the Cut-Off Date. In addition, Plaintiffs assert that the Sun II Complaint may be amended to allege that they did not discover (or could not have discovered through reasonable diligence) the defamatory statements until after the Cut-Off Date, thus tolling the statute of limitations through the "discovery rule." They will therefore be granted leave to amend Count III.
The discovery rule is a judicially created doctrine that tolls the statute of limitations "'until the plaintiff has discovered his injury, or, in the exercise of reasonable diligence, should have discovered his injury.'" Gallucci v. Phillips Jacobs, Inc., 614 A.2d 284, 288 (Pa.Super. 1992) (quoting Corbett v. Weisband, 551 A.2d 1059, 1068 (1988) (citations omitted)).
Because I am granting leave to amend, I shall also address the Nike Defendants' more substantive attack on the sufficiency of Count III. They assert that defamation is subject to a heightened standard of pleading, namely that the complaint must specifically identify: (1) what the alleged defamatory statements are; (2) by whom they were made; (3) and to whom they were made, which Count III fails to do. I disagree. "To the contrary, all the Rules require is 'a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiffs claim is and the grounds upon which it rests." Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, 507 U.S. 163, 168, 113 S.Ct. 1160, 1163 (1993) (quoting Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99 (1957)). Federal courts in this district, following the Supreme Court's reaffirmation of Rule 8(a)'s requirements in Leatherman, have rejected the need to identify the precise defamatory statements, or the specific identity of the speaker(s), or the specific recipient(s) of the statements. Joyce v. Alti America, Inc., 2001 WL 1251489, at *2 (E.D. Pa. Sept. 27, 2001); Tuman v. Genesis Associates, 935 F. Supp. 1375, 1391 (E.D. Pa. 1996); Lynch v. Borough of Ambler, 1995 WL 113290, at *5 (E.D. Pa. Mar. 15, 1995). I also reject the Nike Defendants' heightened pleading standard.
In doing so, I recognize but respectfully disagree with the federal cases cited by the Nike Defendants in support of the more stringent pleading requirement for defamation: Zugarek v. Southern Tioga School Dist., 214 F. Supp.2d 468 (E.D. Pa. 2002) and Smith v. School Dist. of Philadelphia, 112 F. Supp.2d 417 (E.D. Pa. 2000). In tracing their citations, I find that both have their origins in Ersek v. Township of Springfield, 822 F. Supp. 218 (E.D. Pa. 1993). Ersek in turn relied on a Pennsylvania case applying Pennsylvania pleading requirements. Id. at 223. As noted by the district court in Joyce v. Alti America, Inc.,Ersek has been abrogated by Leatherman which states that a federal court, even sitting in diversity, is required to apply the Federal Rules of Civil Procedure, "even when enforcing the federal rule 'alters the mode of enforcing state-created rights.'" Joyce, 2001 WL 1251489, at *2 n. 1 (quoting Tuman v. Genesis Associates, 935 F. Supp. 1375, 1391 (E.D. Pa. 1996) (citing Hanna v. Plumer, 380 U.S. 460, 473 (1965)). Thus, it is Federal Rule of Civil Procedure 8(a), not Pennsylvania law, which governs the sufficiency of the Complaint. Id.
Rule 8(a) is made applicable in adversary proceedings through F.R.Bankr.P. 7008.
While not providing the exact defamatory statements, the Complaint alleges that the Nike Defendants used words to the effect that the Plaintiffs are "bad and dishonest people and counterfeiters." Sun II Compl. ¶¶ 36, 68. This is sufficient to put Nike on notice of the defamatory nature of the statements. Moreover, in addition to identifying Givens as a publisher of the defamatory statements, the Complaint identifies the Nike Defendants generally. Id. This apprises the Nike Defendants, at least by inference, that the statements were made by Nike employees. See Joyce, 2001 WL 1251489, at *3 (allegations of defamatory statement by corporate defendant Alti were sufficient to infer Alti employees). Finally, the Complaint alleges that Chawla has been unable to find any other buyers for his shares in Sun and that others in the community will not consider doing business with the Sun Plaintiffs. Sun II Compl. ¶¶ 36, 73. This is sufficient to put the Nike Defendants on notice, at least by inference, that the recipients were people in the business community. This is all that is required under the Federal Rules. Count III sufficiently states a cause of action for defamation.
CONCLUSION
For the reasons stated above, Count II will be dismissed for failure to state a cause of action for intentional interference with existing or prospective contractual relations and for failure to state a claim for unfair competition. Count III will be dismissed because the Complaint, as pled, places the alleged defamation outside the applicable statute of limitations. However, Plaintiffs will be given leave to amend Counts II and III so as to cure these deficiencies, if possible.
ORDER
AND NOW, this 22nd day of May 2003, upon the Motion of Defendants Nike, Inc. ("Nike"), Nike USA, Inc.("Nike USA") and John Givens ("Givens") (referred to herein with defendants Nike and Nike USA as the "Nike Defendants") to Dismiss the Complaint Pursuant to Federal Rule of Civil Procedure 12(b)(6) (the "Motion"), the Plaintiffs' response thereto, after notice and hearing, and for the reasons stated in the accompanying Memorandum Opinion;
It is hereby ORDERED that:
1. the Motion is GRANTED IN PART. Counts II and III of the Complaint are DISMISSED. In all other respects, the Motion is DENIED;
2. Plaintiffs are granted leave to amend Counts II and III of the Complaint, consistent with the accompanying Memorandum Opinion. Plaintiffs will file any Amended Complaint within twenty (20) days of the entry of this Order;
3. Defendants will have twenty (20) days from service of the Amended Complaint to file an Answer to the Amended Complaint or, if no Amended Complaint is filed, Defendants shall file an Answer to the remaining count of the Complaint within thirty (30) days of the entry of this Order.