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Kraus Industries, Inc. v. Moore

September 18, 2007

KRAUS INDUSTRIES, INC., D/B/A OLSON INDUSTRIES, INC., PLAINTIFF/COUNTERCLAIM-DEFENDANT,
v.
JERRY MOORE AND 3-J MACHINING SERVICES, INC., DEFENDANTS/COUNTERCLAIM-PLAINTIFFS.



The opinion of the court was delivered by: Nora Barry Fischer United States District Judge

MEMORANDUM OPINION

This is an action for alleged defamation, disparagement, and intentional infliction of emotional distress. Plaintiff Kraus Industries, Inc., doing business as Olson Industries, Inc. (hereinafter, "Kraus" or "Plaintiff"), filed this suit in the Court of Common Pleas of Allegheny County against Defendants Jerry Moore and 3-J Machining Services, Inc. (hereinafter, "Defendants", "Moore" or "3-J"), who removed the instant case to this Court. After the Court's ruling on an initial motion to dismiss their original Counterclaims, the Defendants filed an Amended Counterclaim, alleging (1) fraud, (2) detrimental reliance and equitable estoppel, (3) unjust enrichment, (4) defamation, slander and libel, (5) interference with contractual relations, and (6) a request for sanctions under various state and federal statutes as well as Federal Rule of Civil Procedure 11.

Currently pending before this Court is Plaintiff's Motion to Dismiss Amended Counterclaim Counts I, II, III, V, and VI Pursuant to Federal Rule of Civil Procedure 12(b)(6) for Failure to State a Claim Upon Which Relief Can be Granted [DE 55]. Specifically, Kraus argues that Defendants' Amended Counterclaim fails to state a claim upon which relief can be granted as to (1) fraud, (2) detrimental reliance and equitable estoppel, (3) unjust enrichment, (4) interference with contractual relations, and (5) their request for sanctions and attorney's fees.

STANDARD OF REVIEW

Courts use the same standard in ruling on a motion to dismiss a counterclaim under Federal Rule of Civil Procedure 12(b)(6) as they do for a complaint. Freedom Properties, L.P. v. Lansdale Warehouse Co. Inc., Civil Action No. 06-5469, 2007 WL 2254422, at *2 (E.D. Pa. Aug. 2, 2007) (citing United States v. Union Gas Co., 743 F.Supp. 1144, 1150 (E.D. Pa. 1990)).

The applicable inquiry under Rule 12(b)(6) is well-settled. In reviewing a motion to dismiss under Rule 12(b)(6), the Court accepts all well-pleaded allegations as true and views them in the light most favorable to the non-moving party. Evancho v. Fisher, 423 F.3d 347, 350 (3d Cir. 2005); In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir.1997); Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989). "The issue is not whether a [defendant] will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." In re Burlington Coat Factory Sec. Litig., 114 F.3d at 1420 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, (1974)). Claims should be dismissed under Rule 12(b)(6) "only if it is certain that no relief can be granted under any set of facts which could be proved." Klein v. Gen. Nutrition Cos., 186 F.3d 338, 342 (3d Cir.1999) (internal citation omitted); Evancho, 423 F.3d at 351 (quoting D.P. Enter., 725 F.2d at 944) (providing that a motion to dismiss pursuant to Rule 12(b)(6) should be granted only "if it appears to a certainty that no relief could be granted under any set of facts which could be proved"). Under this standard, a complaint, or here a counterclaim, will be deemed to have alleged sufficient facts if it adequately puts the plaintiff on notice of the essential elements of defendant's claims. Nami v. Fauver, 82 F.3d 63, 65 (3d Cir. 1996). However, a court will not accept bald assertions, unwarranted inferences, or sweeping legal conclusions cast in the form of factual allegations. See In re Rockefeller Ctr. Props., Inc. Sec. Litig., 311 F.3d 198, 215 (3d Cir.2002); Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 n. 8 (3d Cir.1997).

Under the liberal notice pleading standard of Federal Rule of Civil Procedure 8(a), a complaint requires only a short and plain statement showing a right to relief rather than a "detailed recitation of proof that in the end establish[es] such a right." Pryor v. NCAA, 288 F.3d 548, 564 (3d Cir. 2002). Overall, "courts have an obligation...to view the complaint as a whole and to base rulings not upon the presence of mere words, but rather, upon the presence of a factual situation which is or is not justiciable. We do draw on the allegations of the complaint, but in a realistic, rather than a slavish, manner." Doug Grant, Inc. v. Great Bay Casino Corp., 232 F.3d 173, 184 (3d Cir. 2000) (quoting City of Pittsburgh v. West Penn Power Co., 147 F.3d 256, 263 (3d Cir. 1998)). Finally, the defendant bears the burden to demonstrate that the complaint fails to state a claim. Gould Electronics, Inc. v. U.S., 220 F.3d 169, 178 (3d Cir. 2000).

FACTUAL BACKGROUND

In view of the appropriate legal standard, this Court must "accept as true all of the allegations in the [Defendants' Amended Counterclaim] and all reasonable inferences that can be drawn therefrom, and view them in the light most favorable to the non-moving party." U.S. ex rel. Magid v. Wilderman, No. Civ. A. 96-CV-4346, 2005 WL 469590, at *1 (E.D. Pa. Feb. 28, 2005) (citing Rocks v. City of Philadelphia, 868 F.2d 644, 645 (3d Cir. 1989)). The Court summarizes the pertinent facts below.

This case arises from a contract between Kraus and Thomas Steel Strip Corporation ("Thomas"), in which Kraus agreed to supply steel to Thomas. The contract between Kraus and Thomas called for Kraus to use "310 grade stainless steel." In turn, Kraus hired 3-J as a subcontractor to fabricate, machine, and assemble certain recuperators and burners to be used in the steel-making facility owned by Thomas. The Defendants allege that the Plaintiff shipped a lesser grade of stainless steel to Defendant 3-J, specifically 304 grade stainless steel. When confronted with this discrepancy, according to the Defendants, the Plaintiff instructed them "not to worry about the steel grades and that [Defendants] should start making the parts ... from 304 grade stainless steel." Docket No. 35, at 13.B. Thomas subsequently rejected at least two shipments of burners and recuperators as nonconforming because they were marked as 304 grade stainless steel. In late March 2005, an employee of Kraus allegedly instructed Defendant Moore to "erase the 304 markings on the steel and to restencil it as 310 grade stainless steel." Id., at ¶23. After first attempting to comply with these instructions, Defendants subsequently refused to comply with Plaintiff's alleged instructions and contacted Thomas and informed it that Kraus "had instructed 3-J to remove the 304 stenciling and restencil the parts as conforming 310 steel." Id., at ¶24.

As a result, Plaintiff and Thomas became involved in a "dispute" (neither party provides any further detail thereto), which, in turn, led to Plaintiff Kraus filing a separate lawsuit against 3-J in or about April 2005 in state court in Berea Municipal Court, Cuyahoga County, Ohio ("Ohio action"). In that lawsuit, Kraus alleged that 3-J failed to complete the required contractual work on the recuperators and burners and altered checks issued to them by the Plaintiff. On or about March 16, 2006, the Ohio action settled, with Kraus agreeing to pay 3-J $7,250.

Plaintiff's present Complaint centers on the following allegation: Defendant Moore made statements to Thomas, informing it that Plaintiff Kraus had asked Defendant Moore to perpetrate fraud on Thomas by re-stenciling the grade of stainless steel (from a lower grade stainless steel to a higher grade stainless steel), which the Plaintiff had supplied to the Defendants. As a result of these alleged false statements, Thomas filed a lawsuit against Kraus in the Court of Common Pleas of Allegheny County, alleging fraud, and ceased doing business with Kraus. As to the instant action, Kraus asserts that these alleged false statements have harmed its reputation in the business community, have deterred third parties from associating or dealing with it, and have caused it to suffer money damages.

In response to Plaintiff Kraus's Complaint, Defendants 3-J and Moore brought Counterclaims (and subsequently amended the same) for fraud (Count I), detrimental reliance/equitable estoppel (Count II), unjust enrichment (Count III), defamation, slander and libel (Count IV), intentional infliction of emotional distress (Count V), interference with contractual relations (Count VI), and a request for sanctions (Count VII), based, for the most part, on alleged statements made by Kraus to Defendants 3-J and Moore regarding the promise of "substantial new and profitable work if 3-J continued to work on [Plaintiff Kraus's] project for Thomas." Docket No. 35, at ¶20.*fn1 Defendants 3-J and Moore allege that they justifiably and foreseeably relied upon such willful misrepresentations by Kraus and that such reliance induced them to provide proprietary information as well as additional work. Docket No. 35, at ¶¶27-28. Additionally, Defendants 3-J and Moore claim that Kraus intentionally slandered and defamed them by commencing the original suit, thereby injuring their good name and business reputation and making it difficult for them to do work in the steel industry. Docket No. 35, at ¶¶61-65.

In the instant Motion, Plaintiff Kraus moves to dismiss Counts I, II, III, V, and VI as pled in Defendants' Amended Counterclaim.*fn2 The Court will address Plaintiff's arguments in turn.

CHOICE OF LAW

As a threshold matter, as this Court has diversity jurisdiction over the instant action, the Court must determine the applicable substantive law, and, in order to do so, this Court looks to the choice of law rules of the forum state, i.e., the Commonwealth of Pennsylvania. See Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496 (1941). Under Pennsylvania choice-of-law rules, "the first question to be answered in addressing a potential conflict of laws dispute is whether the parties explicitly or implicitly have chosen the relevant law." Henkel Corp. v. Hartford Accident & Indemnity Co., 399 F.Supp.2d 607, 611 (E.D. Pa. 2005) (citing City of Philadelphia v. One Reading Ctr. Assoc., 143 F.Supp.2d 508, 512 (E.D. Pa. 2001) (quoting Assicurazioni Generali, S.P.A. v. Clover, 195 F.3d 161, 164 (3d Cir. 1999))). "If the parties have agreed to the applicable law, that agreed-upon law shall generally be given effect." Id.

Here, none of the parties raise the choice-of-law issue in their briefs, and in fact, the parties almost exclusively rely on Pennsylvania law in support of their respective positions. Therefore, the Court finds that the parties have implicitly consented to the application of Pennsylvania law. Moreover, as this is, at least in part, a defamation action, "[u]nder a traditional choice of law analysis, the state where the plaintiff is domiciled generally, but not always, has the greater interest in a defamation case." Osby v. A & E Television Networks and Kurtis Productions, Ltd., No. CIV. A. 96-7347, 1997 WL 338855, at *3 (E.D. Pa. Jan. 17, 1997) (citing Restatement (Second) of Conflict of Laws § 150(2)). Here, the Plaintiff is domiciled in Pennsylvania. See Compl., ¶ 1.

Accordingly, based on the parties' implicit agreement to follow Pennsylvania law and the state of Pennsylvania's interest in this action, the Court sees no reason to sua sponte engage in a choice-of-law analysis. See Osby v. A & E Television Networks and Kurtis Productions, Ltd., No. CIV. A. 96-7347, 1997 WL 338855, at * (E.D. Pa. Jan. 17, 1997) ("Where the parties have agreed to apply Pennsylvania law and Pennsylvania has an interest in the outcome of the litigation, there is no reason for the court, 'sua sponte, to challenge the parties' consensual choice of law'") (quoting Steaks Unlimited, Inc. v. Deaner, 623 F.2d 264, 269-70 (3d Cir. 1980); Marcone v. Penthouse International, Ltd., 533 F.Supp. 353, (D.C. Pa. 1982) (same) (citing Steaks Unlimited, 623 F.2d at 269-70), rev'd by 754 F.2d 1072 (3d Cir. 1985) (providing that "the district court was correct in applying Pennsylvania law")).

ANALYSIS

1. Count ...


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