United States District Court, M.D. Pennsylvania
November 12, 2004.
DIAMOND TRIUMPH AUTO GLASS, INC., Plaintiff
SAFELITE GLASS CORPORATION, Defendant.
The opinion of the court was delivered by: JAMES MUNLEY, District Judge
Presently before the court for disposition is Plaintiff Diamond
Triumph Auto Glass, Inc.'s ("Diamond") motion to dismiss (Doc.
242) Defendant Safelite Glass Corporation's ("Safelite")
counterclaims II-VII for failure to state a claim upon which
relief may be granted. The matter has been fully briefed and is
ripe for disposition. For the following reasons, we will deny the
motion in part and grant it in part.
Both Diamond and Safelite are engaged in the business of
repairing and replacing automobile glass. Safelite, in addition,
manages the automobile glass replacement programs for numerous
insurance companies throughout the country. In conjunction with
its handling of the insurance companies' automobile glass
replacement programs, Safelite operates one or more telephone
call centers to process calls from insured individuals in need of
automobile glass repair or replacement. Upon receiving a request
at its call center from an insured seeking a repair or
replacement job, Safelite refers that job to an automobile glass
repair facility. To facilitate its referral of automobile glass repair
and replacement jobs, Safelite contracts with a network of shops
that provide glass repair and replacement services. Accordingly,
after receiving a job request through its call center, sometimes
Safelite will refer the work to a Safelite facility, and
sometimes the work will be scheduled at another network shop.
In April 2000, Diamond signed a contract with Safelite, called
the "Network Participation Agreement," under which Diamond
received, prior to termination of the Agreement, some of these
automobile glass referrals from the Safelite call center. On
March 29, 2002, Diamond filed a complaint initiating the case
sub judice, alleging that Safelite breached the Network
Participation Agreement, violated a duty of good faith and fair
dealing, engaged in deceptive trade practices, and interfered
with prospective contractual relationships. Diamond filed a
second amended complaint on February 18, 2004.
In response, Safelite filed an answer with seven counterclaims
on March 8, 2004. These counterclaims arise from two allegedly
improper business practices by Diamond. First, in response to
Safelite's breach of the network agreement, Diamond allegedly
sent letters to the insurance companies, whose glass replacement
programs are run by Safelite, maintaining that Safelite stole
auto-glass replacement jobs from Diamond. Second, Diamond
allegedly provided "push payments" to insurance agents and
individuals working with and for insurance companies. These push
payments consisted of financial rewards, such as gift
certificates or free gasoline cards, provided to insurance agents
in exchange for their agreement to refer insured individuals in need of glass
replacement to Diamond.
In Counterclaim I, Safelite alleges that Diamond's letters to
Safelite's insurance clients were defamatory. Counterclaim II
alleges that the letters constituted false advertising under the
Lanham Act, 15 U.S.C. § 1125(a). Counterclaim III alleges that
Diamond's push payments constitute commercial bribery under the
Robinson-Patman Act, section 3(c), 15 U.S.C. § 13(c).
Counterclaim IV avers that Diamond intentionally interfered with
Safelite's business relationships by providing the push payments.
Counterclaim V maintains that common law unfair competition
prohibits Diamond's push payments. Counterclaim VI alleges that
the push payments violated various state statutes proscribing
deceptive trade practices and commercial bribery. Finally,
Counterclaim VII avers that Diamond breached the Network
Agreement by making push payments because the Agreement
specifically required Diamond to comply with all laws and
regulations applicable to its business. On May 6, 2004, Diamond
filed the instant motion to dismiss bringing this case to its
The Court exercises jurisdiction over this dispute pursuant to
its federal question jurisdiction, 28 U.S.C. § 1331, and
supplemental jurisdiction, 28 U.S.C. § 1367. Pennsylvania law
applies to those claims considered pursuant to supplemental
jurisdiction. United Mine Workers of Am. v. Gibbs,
383 U.S. 715, 726 (1966) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64
When a 12(b)(6) motion is filed, the sufficiency of a
complaint's allegations are tested. The issue is whether the
facts alleged in the complaint, if true, support a claim upon
which relief can be granted. In deciding a 12(b)(6) motion, the
court must accept as true all factual allegations in the
complaint and give the pleader the benefit of all reasonable
inferences that can fairly be drawn therefrom, and view them in
the light most favorable to the plaintiff. Morse v. Lower Merion
Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997).
Diamond seeks to dismiss Counterclaims II-VII. We will consider
each count in seriatim.
A) Count II: Lanham Act Claim
Safelite alleges that Diamond engaged in false advertising in
violation of the Lanham Act, 15 U.S.C. § 1125(a)(1)(b), by
sending letters to insurance companies that participate in
Safelite's claims-management business. In these letters, Diamond
accused Safelite of improperly steering customers in what
amounted to theft of customers. Diamond asserts that we should
dismiss this claim because these letters do not constitute
advertising under the meaning of the Lanham Act.
An entity engages in false advertising if it "uses . . . any
false or misleading description of fact, or false or misleading
representation of fact, which (B) in commercial advertising or promotion, misrepresents the nature,
characteristics, qualities, or geographic origin of his or her or
another person's goods, services, or commercial
activities. . . ." 15 U.S.C. § 1125(a)(1)(B). The application of
this section is "limited to false advertising as that term is
generally understood." Gordon & Breach Science Publishers S.A.
v. Am. Inst. of Physics, 859 F. Supp. 1521, 1532 (S.D.N.Y.
1994) (internal citations omitted). The section, however, does
apply to statements made outside the "classic advertising
campaign." Id. at 1535-36. Therefore, courts have
developed the following four part test to determine whether a
statement or representation is commercial advertising. The
statement must be: "(1) commercial speech; (2) [made] by a
defendant in commercial competition with the plaintiff; (3)
designed to influence customers to buy the defendant's products;
and (4) . . . sufficiently disseminated to the relevant
purchasing public to constitute advertising or promotion within
the industry." Schmidt, Long, and Assoc. v. Aetna U.S.
Healthcare, Inc., No.CIV.A.00-3683, 2001 WL 856946, at *10
(E.D. Pa. July 26, 2001) (citing Gordon,
859 F. Supp. at 1536).
Diamond argues that, taking all of Safelite's allegations as
true, the letters are not advertising because they were not
designed to influence the insurance agencies to buy Diamond
products. Diamond reasons that it does not offer a service to
insurance companies, but instead offers a glass replacement
service to insureds.*fn2 Diamond notes that Safelite's pleading states that Diamond's purpose in sending the letters was
to "request that Safelite's Insurance Clients contact Safelite
and require that Safelite expend time and money to make internal
changes that will allegedly benefit Diamond." Counterclaim ¶ 11.
Taking all of Safelite's allegations as true, we cannot say
that the letters were not designed to influence customers to
purchase Diamond's products or services. Diamond's
characterization its business and clientele is irrelevant; the
relevant consideration is Safelite's allegations. Safelite
Diamond has published material to Safelite's
Insurance Clients, and upon information and belief,
to others in the auto glass repair and replacement
industry, accusing Safelite of illegal and aggressive
steering tactics and outright theft of jobs targeted
for Diamond, and is using these false accusations to
promote its own services, soliciting commercial
relationships between Diamond and Safelite's
Insurance Clients and prospective insurance clients.
Counterclaim ¶ 50.
Here, Safelite has averred that the letters were designed to
solicit commercial relationships between Diamond and Safelite's
insurance clients as well as perspective clients. Additionally,
Safelite maintains that Diamond sent letters not only to
insurance clients, but also to others in the industry. Id. If
Safelite can show that "others in the industry" include insured
individuals who use Diamond's automobile glass services, then the
letters may have been designed to influence customers. When a
Lanham Act false advertising claimant alleges that the defendants
made false claims in letters, a court cannot determine the
designed impact of the letters without first determining who the intended
recipients were. See Symantec Corp. v. CD Micro, Inc.,
No.CIV.A.02-406-KI, 2003 WL 2359587, at *3 (D. Or. Feb. 3, 2003)
(declining to dismiss Lanham Act false advertising claims on the
pleadings because the plaintiff alleged that the defendant sent
letters to "various entities" and plaintiff is not required to
plead a complete list of the recipients).
Additionally, taking all of Safelite's allegations as true, we
cannot say that Safelite will not be able to prove that the
insurance companies are customers of Diamond's services and
products. Safelite alleges that "Diamond competes directly with
Safelite in the business of auto glass sales, repair and
replacement and related services throughout the United States."
Counterclaim ¶ 7 (emphasis added). The insurance companies may be
customers of Diamond's "related services" because Safelite
alleges that the call center program is a service related to the
business of auto glass replacements. See Counterclaim ¶ 3-5.
Thus, if Safelite can prove that Diamond engages in a related
service for insurance companies, such as a call center, Safelite
may be able to demonstrate that Diamond designed the letters to
influence customers to purchase its products or services.
Therefore, we will deny Diamond's motion to dismiss this
B) Count III: Robinson-Patman Act Claim
In Counterclaim III, Safelite alleges that Diamond's push
payments amount to commercial bribery under the Section 3(c) of
the Robinson-Patman Act, 15 U.S.C. § 13(c). This section applies
only to bribes where the "dominant nature" of the underlying
transaction constitutes a sale of goods rather than a contract for services.
Tri-State Broad. Co. v. United Press Int'l, Inc., 369 F.2d 268
(5th Cir. 1966); see also Kennedy Theater Ticket Serv. v.
Ticketron, 342 F. Supp. 922, 927 (E.D. Pa. 1972) (dismissing a
Robinson-Patman commercial bribery claim because the dominant
nature of ticket sales is a contract for services) (citing
Tri-State Broad., 369 F.2d at 270)).*fn3
Diamond argues that the dominant nature of automobile glass
installation is a contract for services. We find it premature to
make this determination on the pleadings.
The dominant nature test requires an analysis of a variety of
factors. See May Dep't Store v. Graphic Process Co.,
637 F.2d 1211, 1214-16 (9th Cir. 1980) (weighing factors such as the input
costs of the tangible goods and intangible services, the supplies
involved, and the breakdown of the costs in billing the
customer). In some cases, the dominant nature of a transaction
may be apparent from the pleadings, and thus the case may be
disposed of on a motion to dismiss. See, e.g., Freeman v. Chicago Title & Trust
Co., 505 F.2d 527, 530-31 (7th Cir. 1974) (finding title
insurance to be intangible because the paper on which the
contract is written is incidental to the services that the paper
represents). However, in cases where the nature of the
transaction is not apparent from the pleadings, it is
inappropriate to dispose of the case without analyzing a
developed record. In May, the court denied summary judgment
because a material issue of genuine fact existed as to whether
services or goods dominated the nature of the underlying
transaction. 637 F.2d at 1214-16. In the transaction in question,
the defendant received the plaintiff's artwork and transformed it
into a "velox," which is series of dots which is easily
reproduced as artwork in a newspaper. Id. at 1213. The court
found the defendant had "not produced any comparison between the
cost of the physical components of a velox and the price charged
to [plaintiff]. There is no evidence in the record that
[defendant] billed [plaintiff] separately for its labor." Id.
at 1216. Without an analysis, or even a detailed description, of
the transactions in question we cannot weigh the factors which
determine the dominant nature of the transactions.
Additionally, the dominant nature test may not apply in this
case because the test is useful only when tangible and intangible
elements are fused in the same transaction. Metro Communications
v. Ameritech Mobile Communications, 984 F.2d 739, 745 (6th Cir.
1993). In Metro, the plaintiff alleged that the defendant
violated the Robinson-Patman Act in its marketing of cellular
phone activation services. Id. at 45. The court found that
although the defendant provided activation services and sold
phones, they conducted the two transactions separately. Id. The dominant nature test, therefore, did not
apply because the activation service was the transaction
involved, and there was no question that the sale of phones was
not fused into the sale of the activation service. Id.; see
also Innomed Labs v. Alza Corp., 368 F.3d 148, 158-60 (2d Cir.
2004) (finding the dominant nature test inapplicable to the sale
of a commodity with the appended right to exclusive distribution
because the tangible and intangible elements were separable).
An analysis of Safelite's pleadings manifests that Safelite has
pled facts which could support a claim under the Robinson-Patman
Act. Here, Safelite alleges that the push payments were made in
the context of "glass-job" transactions, Counterclaim ¶ 58, and
that Diamond is in the business of "auto glass sales, repair and
replacement and related services." Counterclaim ¶ 7. Safelite may
be able to produce evidence that Diamond provided the push
payments in exchange for the insurance agents' agreement to refer
customers to Diamond's glass sales service. In the absence of a
developed record, we cannot determine whether the push payments
were made in exchange for "glass jobs" that involved the sale of
glass, the replacement of glass, or some combination thereof. As
we are limited to an analysis of the pleadings, we cannot
determine "beyond doubt that the plaintiff can prove no set of
facts in support of his claim that would entitle him to relief."
Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Therefore, we find
dismissal premature at this juncture and we will deny Diamond's
motion to dismiss Safelite's Robinson-Patman Act claim.*fn4 C) Count VI: State Commercial Bribery Claims*fn5
In Count VI, Safelite claims that Diamond violated the
commercial bribery statutes of South Carolina, North Carolina,
West Virginia, and Illinois by making push payments to its
agents. Diamond now seeks to dismiss each of these claims for
failure to plead facts sufficient to state a claim. It argues
that Safelite has failed to make a "short and plain statement of
the claim showing that the pleader is entitled to relief" as
required by Federal Rule of Civil Procedure 8 ("Rule 8") because
its pleading avers that the push payments give rise to a cause of
action "if made in [these states]." Counterclaim ¶ 86-87. Diamond
argues that such hypothetical pleading does not satisfy Rule 8.
It further argues that hypothetical pleading defeats the purpose
of Rule 11, which requires that "the allegations and factual
contentions [in a pleading] have factual support," FED. R. CIV.
P. 11, and that given the factual background, Safelite is not
justified in pleading hypothetically.
Rule 8 specifically allows a party to plead hypothetically,
stating, "[a] party may set forth two or more statements of a
claim or defense alternately or hypothetically." FED. R. CIV. P.
8(e)(2). "Generally, an alternative claim is of the form
`either-or,' while a hypothetical claim is of the form of `if-then.'" Langer v.
Monarch Life Ins. Co., 966 F.2d 786, 802 n. 21 (3d Cir. 1992)
(citing WRIGHT & MILLER, 5 FEDERALPRACTICE AND PROCEDURE § 2182,
at 525 (West 2d ed. 1990)). While Rule 11 does require that a
party make a good faith effort to determine the facts before
pleading hypothetically, it does not preclude hypothetical
A party therefore should not set forth inconsistent,
or alternative, or hypothetical statements in the
pleadings unless, after a reasonable inquiry, the
pleader legitimately is in doubt about the factual
background or legal theories supporting the claims or
defenses or is otherwise justified in pleading in
this fashion and the pleader can represent that he is
not doing so for an improper purpose.
WRIGHT & MILLER, 5 FEDERALPRACTICE AND PROCEDURE § 2185 (3d. ed.
West 2004). Therefore, a pleading is not defective simply because
it states a claim hypothetically, and we will deny Diamond's
motion to dismiss on this ground.*fn6
Additionally, Diamond argues that Safelite's South Carolina,
North Carolina, West Virginia, and Illinois claims all fail to
state a cause of action. We will consider each argument in
1) South Carolina
Diamond argues that we should dismiss Safelite's South Carolina
commercial bribery claim because the relevant statute, South
Carolina Code Annotated § 39-5-170(3) (2003), came into effect on
April 22, 2002 and Safelite has not specifically alleged that any
push payments took place after this date. Further, the failure is
material because this lawsuit was commenced in March 2002, before
the effective date of the statute.
The date of the original pleading is irrelevant because
Safelite's counterclaims were filed in a supplemental pleading in
March of 2004 in response to Diamond's supplemental complaint. A
supplemental pleading may "set forth transactions or
occurrences or events which have happened since the date of the
pleading sought to be supplemented." FED. R. CIV. P. 15(d). In
its supplemental pleading, Safelite alleges that Diamond
continued to make push payments after the effective date of the
statute. Counterclaim ¶ 12-28. Therefore, we will deny Diamond's
motion to dismiss Safelite's South Carolina claim because
Safelite's pleading provides sufficient notice to Diamond as
required by Rule 8.
2) North Carolina and West Virginia
Diamond argues that the North Carolina and West Virginia
commercial bribery statutes, North Carolina General Statute §
14-353 and West Virginia § 47-11A-3, include elements that
Safelite did not plead. Specifically, North Carolina General
Statute § 14-353 requires that the defendant provide payments
with an intent to influence the recipient and that the payment be
made "under an agreement or an understanding that he shall act in
any particular manner in relation to his principal's, employer's,
or master's business." N.C. GEN. STAT. § 14-353 (West 2004). West
Virgina Code § 47-11A-3 requires that payments be made in secret
and that the payments are not available to all like purchasers.
W. VA. CODE § 47-11A-3 (West 2004). A pleading need not set forth every element of a cause of
action. Menkowitz v. Pottstown Mem'l Med.l Ctr., 154 F.3d 113,
124-25 (3d Cir. 1998). "A complaint will withstand a Fed.R. Civ.
P. 12(b)(6) attack if the material facts as alleged, in addition
to inferences drawn from those allegations, provide a basis for
recovery." Id. Safelite's pleading states that Diamond provides
financial benefits to insurance agents in exchange for the
agent's agreement to recommend that insured individuals use
Diamond for glass repair or replacement. Counterclaim ¶ 12-28. It
further asserts that Diamond specifically contacts agents to
induce them to enter into these agreements, and that the insureds
are not aware of these transactions. Counterclaim ¶ 19, 22. We
find that these allegations provide sufficient notice of the
basis of the recovery which Safelite seeks, and therefore we will
deny Diamond's motion to dismiss Safelite's claims under North
Carolina General Statute § 14-353 and West Virginia Code §
Diamond alleges that the Illinois statute under which Safelite
seeks to hold them liable, 720 Illinois Compiled Statutes §
5/29A-1-2, does not provide a private cause of action, and
instead is a criminal statute. We agree. Under, 720 Illinois
Compiled Statutes § 5/29A-1-2, a part of the Illinois Criminal
Code, "[a] person commits commercial bribery when he confers, or
offers, or agrees to confer, any benefit upon any employee, agent
or fiduciary without the consent of the latter's employer or
principal, with intent to influence his conduct in relation to
his employer's or principal's affairs." 720 ILL. COMP. STAT. §
5/29A-1-2 (West 2004). Safelite points to no authority that the Illinois
legislature intended this section to provide a private cause of
action. Safelite argues that Williams Electronics Games Inc. v.
Garrity, 366 F.3d 569 (7th Cir. 2004) recently recognized a
claim for commercial bribery under Illinois law. Williams
recognizes an Illinois common law commercial bribery claim, but
does not hold that 720 ILL. COMP. STAT. § 5/29A-1-2 creates a
private cause of action. Id. at 576-77. Therefore, we will
grant Safelite leave to amend its counterclaim to include a
commercial bribery claim under Illinois common law, and we will
dismiss Safelite's claim under 720 ILL. COMP. STAT. § 5/29A-1-2
because this statute provides no private cause of action.
D) Count IV, Intentional Interference with Business Relations;
Count V, Common Law Unfair Competition; and Count VII, Breach of
Diamond argues that Safelite's common law claims of intentional
interference with business relations, unfair competition, and
breach of contract should be dismissed because they are
predicated on a violation of the state and federal statutes
discussed previously. It argues that since the statutory claims
should be dismissed, so should the common law claims that rely
upon them. Similarly, Diamond further argues that if we dismiss
the Lanham Act and Robinson-Patman Act claims we will not have
subject matter jurisdiction over Safelite's state statutory and
common law claims. These arguments are both moot because we will
not dismiss the Lanham Act claim nor the Robinson-Patman Act
claim.*fn7 We will dismiss, without prejudice, the portion of Counterclaim
VI that is based on 720 Illinois Compiled Statutes § 5/29A-1-2,
because this section does not provide a private cause of action.
We will deny Diamond's motion to dismiss the remaining
counterclaims. An appropriate order follows. ORDER
AND NOW, to wit, this twelfth day of November 2004, Plaintiff
Diamond Triumph Auto Glass Inc.'s ("Diamond") motion to dismiss
(Doc. 242) Defendant Safelite Glass Corporation's ("Safelite")
counterclaims II-VII (Doc. 206) is hereby GRANTED in part and
DENIED in part. It is hereby ORDERED that:
1) Safelite's Counterclaim pursuant to 720 Illinois Compiled
Statutes § 5/29A-1,-2 is hereby DISMISSED.
2) Diamond's motion to dismiss is DENIED as to all remaining
3) Safelite is granted LEAVE to amend its complaint to
include an Illinois common law commercial bribery claim.