IRENAS, Senior District Judge:
Plaintiff G & F Graphic Services, Inc., doing business as Inserts East, contracted to purchase from Defendant Graphic Innovators, Inc. ("GI"), a "remanufactured" commercial Harris N400B printing press for $2.7 million. Inserts East asserts that the printing press has never worked correctly, and that Graphic Innovators fraudulently sold it an older, historically problematic N400 model, rather than the N400B model specified in the parties' contract of sale.
Presently before the Court is Defendants' Partial Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons stated herein, the Motion will be denied.
The Complaint alleges the following facts.
Plaintiff Inserts East is a New Jersey corporation with its principal place of business in Pennsauken, New Jersey. It specializes in "produc[ing] circulars and other printed materials for a wide variety of customers, including leading supermarkets, arts and craft retailers, clothing retailers, and sporting goods stores." (Compl. ¶ 1).
In 2012, Inserts East, seeking to expand its business, began its search for a printing press that could "print commercially acceptable printed products at a rate of at least 35,000 impressions per hour." (Compl. ¶ 11) In late 2012, Defendant GI told Inserts East that it had a "Harris N400B" press "that it was prepared to remanufacture ... to meet Inserts East's needs." (Id. ¶ 12)
In April, 2013, GI began installation of the press in Inserts East's Pennsauken facility. The press "was operating by late June 2013, [but] it has never run reliably or at acceptable [] speeds to produce a commercially acceptable product." (Compl. ¶ 24) "For example, if the press runs at speeds in excess of 24,000 impressions per hour, it vibrates excessively and `loses register,' which means that the image is misaligned on the page. Such a product ... is not commercially acceptable." (Id. ¶ 24).
Inspection of the press has also revealed other problems, such as damaged cylinder bearings, and the absence of certain upgrades that GI represented it would make. (Compl. ¶ 26) "Inserts East has allowed GI to spend weeks ... attempting to cure the[] defects ... but those efforts have proven futile." (Id. ¶ 29).
Inserts East believes that GI intentionally sold it a remanufactured N400 press, rather than an N400B press. It bases its belief on the alleged facts that: (1) when Inserts East tried to replace a damaged cylinder, "a stock N400B would not fit" in the press; and (2) "many of the [press's] component parts had their serial numbers removed prior to the delivery of the [press] to Inserts East." (Compl. ¶¶ 33-34).
The Complaint asserts seven counts: (1) breach of express warranty; (2) rejection or revocation of acceptance; (3) breach of contract; (4) unjust enrichment; (5) violation of the New Jersey Consumer Fraud Act, N.J.S.A. 56:8-1 et seq.; (6) common law fraud; and (7) a claim for a declaration that the damage limitation clause in the contract of sale "is unconscionable and unenforceable in that it was procured by means of the fraudulent conduct of [Defendants] GI and Kiley." (Compl. ¶ 92) Defendant Kiley is only a Defendant to the statutory and common law fraud claims (Counts 5 and 6); all other counts (i.e., the contract and quasi-contract claims) are asserted only against Defendant GI.
Defendants presently move to dismiss Counts 4 through 7 only.
Federal Rule of Civil Procedure 12(b)(6) provides that a court may dismiss a complaint "for failure to state a claim upon which relief can be granted." In order to survive a motion to dismiss, a complaint must allege facts that raise a right to relief above the speculative level. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); see also Fed.R.Civ.P. 8(a)(2). While a court must accept as true all factual allegations in the plaintiff's complaint, and view them in the light most favorable to the plaintiff, Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir.2008), a court is not required to accept sweeping legal conclusions cast in the form of factual allegations, unwarranted inferences, or unsupported conclusions. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.1997). The complaint must state sufficient facts to show that the legal allegations are not simply possible, but plausible. Phillips, 515 F.3d at 234. "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." Ashcroft v. Iqbal, 556 U.S. 662,
The contract provides that it "will be construed in accordance with and governed by the laws of the State of New Jersey." (Compl. Ex. A, p. 13) Moreover, the parties assume that New Jersey law applies to all of the claims presently at issue. (See Defs' Moving Brief, p. 10) Thus, the Court applies New Jersey law.
Each disputed Count is addressed in turn.
Defendants argue that Inserts East's unjust enrichment claim is "duplicative" because it seeks "relief ... identical to the relief available in [the] rejection/revocation of acceptance claim." (Moving Brief, p. 12) But even assuming arguendo that Defendants' statement is correct, it is not a basis for dismissal under Fed. R.Civ.P. 12(b)(6).
As Defendants themselves state in their brief, "`recovery based on a quasi-contract theory is mutually exclusive of a recovery based on a contract theory.'" (Moving Brief, p. 11, quoting Duffy v. Charles Schwab & Co., Inc., 123 F.Supp.2d 802, 814 (D.N.J.2000)) This is a correct statement of the law; if Inserts East prevails, it will not be able to obtain double recovery.
Defendants' Motion to Dismiss Count 4 will be denied.
Next, Defendant Kiley argues that the statutory and common law fraud claims asserted against him in his individual capacity fail to state a claim. The Court disagrees.
The New Jersey Supreme Court has held, "an individual who commits an affirmative act or knowing omission that the [Consumer Fraud Act] has made actionable can be liable individually" under the CFA. Allen v. V and A Brothers, Inc., 208 N.J. 114, 131, 26 A.3d 430 (2011). Liability will be imposed on an individual when that "specific individual has engaged in conduct prohibited by the CFA." Id. at 132, 26 A.3d 430; see also id. at 133, 26 A.3d 430 ("nothing in the CFA or the relevant precedents suggests that ... the individual employee or officer will be shielded from liability for the CFA violation he or she has committed.") (emphasis added).
Kiley argues that Inserts East has not pled any facts supporting a conclusion that he specifically made any misrepresentation or omission. The Court disagrees. The Complaint alleges, "[d]uring its negotiations with GI, Inserts East asked GI and Kiley to confirm that the model GI was offering to sell was indeed a N400B press. Kiley confirmed and represented unequivocally that the GI Press was a N400B," (Compl. ¶ 14), yet the press allegedly was not an N400B model. (Compl. ¶ 33)
Kiley's Motion to Dismiss Count 5 will be denied.
As to the common law fraud claim, Kiley argues that under Saltiel v. GSI Consultants, 170 N.J. 297, 788 A.2d 268 (2002), he cannot be liable in tort under a participation theory of liability because Inserts East cannot establish that his company, GI, owed a duty of care to Inserts East. See Saltiel, 170 N.J. at 303, 788 A.2d 268 ("A predicate to [personal] liability is a finding that the corporation owed a duty of care to the victim, the duty was delegated to the officer and the officer breached the duty of care by his own conduct.").
Kiley's argument misses the mark because the tortious conduct alleged here is intentional fraud, whereas the tort alleged in Saltiel was negligence. See 170 N.J. at 299, 302, 306, 788 A.2d 268. The concepts of a duty of care, and breach of that duty, are negligence concepts that typically have no place in the intentional tort analysis. See Restatement (Second) of Torts § 4 cmt. b ("The word `duty' is used most frequently in that part of the Restatement... which deals with the subject of negligence.... `Duty' is rarely used in dealing with the invasions of legally protected interests by acts which are intended to invade them."). Stated another way, every person has a "duty" to refrain from committing intentional torts. Blystra v. Fiber Tech Group, Inc., 407 F.Supp.2d 636, 647 (D.N.J.2005).
Saltiel, rather than supporting Kiley's argument for dismissal, directly undercuts it. In Saltiel, the New Jersey Supreme Court reaffirmed the legal "basis for holding corporate officers personally liable" for their intentional tortious conduct, such as "fraud and conversion":
170 N.J. at 304, 788 A.2d 268 (quoting Hirsch v. Phily, 4 N.J. 408, 416, 73 A.2d 173 (1950)).
As already discussed above, Inserts East asserts that Kiley, himself, made a material misrepresentation of fact concerning the press GI sold. Thus, the Complaint sufficiently alleges that Kiley participated in GI's alleged fraud. Saltiel, as applied to this case, merely stands for the proposition that Kiley cannot escape liability by asserting that he gained no direct personal benefit from the alleged fraud.
Kiley's Motion to Dismiss Count 6 will be denied.
Defendants also assert that the fraud claims against it are barred by the economic loss doctrine.
As discussed at length in Saltiel, the economic loss doctrine helps to maintain the "critical" "distinctions between tort and contract actions." 170 N.J. at 310, 314, 788 A.2d 268. Essentially, the economic loss doctrine functions to eliminate
Thus, if through its tort claim, a plaintiff "`simply seeks to enhance the benefit of the bargain [it] contracted for,'" Id. at 798 (quoting Saltiel), the economic loss doctrine applies. If, however, a plaintiff asserts that a defendant breached a "duty owed to the plaintiff that is independent of the duties that arose under the contract," Saltiel, 170 N.J. at 317, 788 A.2d 268, the economic loss doctrine does not apply.
The parties discuss this issue without distinguishing between the statutory CFA claim (Count 5) and the common law fraud claim (Count 6).
With respect to the CFA claim against GI, the Court agrees with Judge Walls' analysis in Florian Greenhouse v. Cardinal IG Corp.:
11 F.Supp.2d 521, 528 (D.N.J.1998); see also Lithuanian Commerce Corp. v. Sara Lee Hosiery, 219 F.Supp.2d 600, 608 (D.N.J.2002) ("To [apply the economic loss doctrine to plaintiffs' CFA claim] would foreclose plaintiffs from seeking special tort remedies specifically allowed by the New Jersey legislature.") (following Florian); see generally Barton v. RCI, LLC, 2011 WL 3022238 at *6-7, 2011 U.S. Dist. LEXIS 80134 at *18-19 (D.N.J. July 22, 2011) (holding that the economic loss doctrine does not bar CFA claim); In re WellNx Mktg. & Sales Practices Litig., 673 F.Supp.2d 43, 53 (D.Mass.2009) (holding that New Jersey's economic loss doctrine does not bar New Jersey CFA claim); In re Ford Motor Co. E-350 Van Prods. Liab. Litig., 2008 WL 4126264 at *29, 2008 U.S. Dist. LEXIS 73690 at *88-90 (D.N.J.2008) (holding that the economic loss doctrine does not bar CFA claim and stating, "the UCC expressly preserves a buyer's right to maintain an action in fraud."); cf. Marrone v. Greer & Polman Const., Inc., 405 N.J.Super. 288, 964 A.2d 330 (App.Div.2009) (holding that "plaintiffs' claims based on the Products Liability Act
Moreover, this result is consistent with the New Jersey Supreme Court's discussion of the economic loss doctrine in Saltiel. The CFA imposes on GI (and all sellers of merchandise) a duty to be fair and honest in consumer transactions which is "independent of the duties that arose under the contract," 170 N.J. at 317, 788 A.2d 268. Therefore, the economic loss doctrine does not preclude Inserts East's CFA claim. See also Golf v. Henderson, 376 Ill.App.3d 271, 315 Ill.Dec. 105, 876 N.E.2d 105 (1st Dist.2007) (holding that Illinois' Consumer Fraud Act imposes "extracontractual duties" and therefore Illinois' economic loss doctrine did not bar the statutory claim).
GI's Motion to Dismiss on this ground will be denied.
With respect to the common law fraud claim against GI, the parties do not dispute that the New Jersey Supreme Court would likely recognize a fraud in the
Judge Orlofsky wrote in Lithuanian Commerce Corp. v. Sara Lee Hosiery,
219 F.Supp.2d 600, 607 (D.N.J.2002) (internal citations omitted).
An examination of the parties' contract reveals that no warranty applies to Inserts East's claim that it was sold the wrong model press
The warranties are found in two places: in the "Warranty" section of the Harris N400B Proposal (attached to the contract and expressly incorporated therein); and Paragraph (g) of the contract itself. These clauses state, in relevant part,
(Compl. Ex. A) (caps and bold in original).
The above-quoted warranties demonstrate that: (1) while some warranties were provided — for example, that the press will be free from defects for a certain period of time — a warranty that the press was an N400B model was not among them; and (2) all other warranties, express and implied, were clearly, broadly, and unequivocally disclaimed. Thus, no warranty claim duplicates, or overlaps with, Inserts East's common law fraud claim; or, in the words of Lithuanian Commerce, the fraud alleged is not "contained within the four corners of the contract." 219 F.Supp.2d at 607.
Similarly, while the contract limits damages recoverable for particular claims — "breach of warranty, or contract or negligence" claims — intentional torts are not included in the list, thus supporting a conclusion
Alternatively, Judge Cooper in Bracco Diagnostics, Inc. v. Bergen Brunswig Drug Co., articulated an arguably broader fraud in the inducement exception:
226 F.Supp.2d 557, 563-64 (D.N.J.2002) (internal citations and quotations omitted).
Under this standard, too, Inserts East's common law fraud claim survives. Inserts East alleges "pre-contractual misrepresentations." Bracco, 226 F.Supp.2d at 564. The Complaint specifically alleges, "[d]uring its negotiations with GI, Inserts East asked GI and Kiley to confirm that the model GI was offering to sell was indeed, a N400B press. Kiley confirmed and represented unequivocally that the GI Press was a N400B." (Compl. ¶ 14) (emphasis added) Moreover, the alleged facts support an inference that Inserts East would not have contracted to purchase an N400 press given its knowledge of the historical problems with that model (Compl. ¶ 13), thereby supporting a conclusion that the alleged misrepresentation induced Inserts East to enter into the contract with GI. Such representations are necessarily "extraneous to the contract," id. at 564, because they took place prior to the execution of the contract, and, as explained supra, no warranty in the contract guarantees that the press being sold is an N400B model.
Accordingly, the Court holds that the fraud in the inducement exception to the economic loss doctrine applies to Inserts East's common law fraud claim. GI's Motion to Dismiss on this ground will be denied.
Defendants also argue that the CFA and common law fraud claims are not adequately pled under the standards set forth in Fed.R.Civ.P. 8 and 9(b), Twombly, and Iqbal. Defendants argue that the Complaint fails to identify who made what fraudulent misrepresentations, and that Inserts East "has not alleged any intent on the part of GI and Kiley in connection with" the alleged fraudulent conduct. (Moving Brief, p. 25) The Court disagrees.
At the risk of excessive repetition, the Complaint asserts that Defendant Kiley, acting on behalf of Defendant GI, specifically represented that GI was selling Inserts East an N400B press, when the
Further, the alleged fact that "many of the component parts [of the press] had their serial numbers removed prior to the delivery of the GI Press to Inserts East" (Compl. ¶ 34) supports a plausible inference of fraudulent intent. Compare Fed. R.Civ.P. 9(b) ("Malice, intent, knowledge and other conditions of a person's mind may be alleged generally.").
The Court holds that the CFA and common law fraud claims are adequately pled. Defendants' Motion to Dismiss on this ground will be denied.
Lastly, Defendants argue that Inserts East has not stated a claim for declaring the damages limitation clause unenforceable.
The parties agree on the applicable legal standard:
Carter v. Exxon Co. USA, 177 F.3d 197, 208 (3d Cir.1999) (internal citations and quotations omitted). "In determining whether a contract is unconscionable, courts focus on the bargaining power of the parties, the conspicuousness of the putative unfair term, and the oppressiveness and unreasonableness of the term." Id. at 207.
The unconscionability inquiry is fact-intensive and therefore more appropriately explored at summary judgment, as Inserts East suggests. At the pleadings stage, Inserts East's plausible allegations of fraud in the inducement of the contract are sufficient to open the door to discovery. Defendants' alleged deception, if proven, would fundamentally alter the balance of bargaining power between the parties and would weigh in favor of unenforceability.
Defendants' Motion to Dismiss Count 7 will be denied.
In light of the foregoing, Defendants' Motion to Dismiss will be denied. An appropriate Order accompanies this Opinion.
This matter having come before the Court on Defendants' Motion to Dismiss (Docket #7); the Court having considered the parties' submissions, and for the reasons set forth in the accompanying Opinion issued on even date herewith, which findings of fact and conclusions of law are incorporated herein by reference, and for good cause appearing,
IT IS on this 8th day of May, 2014,
Defendants' Motion to Dismiss (Docket #7) is hereby
Alternatively, even if the economic doctrine does apply to the fraud claims against Defendant Kiley, those claims survive for the same reasons the fraud claims against GI survive.
Cf. Ulbrich v. Groth, 310 Conn. 375, 411-12, 78 A.3d 76 (2013) ("we conclude that the economic loss doctrine does not bar [Connecticut Unfair Trade Practices Act] claims arising from a breach of contract, including a breach of a contract for the sale of goods covered by the UCC, when the plaintiff has alleged that the breach was accompanied by intentional, reckless, unethical or unscrupulous conduct."); A & R Fugleberg Farms, Inc. v. Triangle Ag, LLC, 2010 WL 1418870 at *5-7, 2010 U.S. Dist. LEXIS 34325 at *15-17 (D.N.D.2010) (holding that North Dakota's economic loss doctrine did not bar North Dakota Consumer Fraud Act claim) (citing Florian); compare TSYS Acquiring Solutions, LLC v. Elec. Payment Sys., LLC, 2010 WL 3882518 at *2-3, 2010 U.S. Dist. LEXIS 104259 at *8-9 (D.Ariz. Sept. 29, 2010) (holding that Arizona Consumer Fraud Protection Act claim was not barred by Arizona's economic loss doctrine because the claim "sound[ed] in contract," not tort).