United States District Court, W.D. Pennsylvania
BRAND MARKETING GROUP, LLC doing business as THERMABLASTER, Plaintiff,
INTERTEK TESTING SERVICES NA, INC. doing business as INTERTEK TESTING SERVICES, Defendant.
MEMORANDUM OPINION ON DEFENDANT'S POST TRIAL MOTION 
ARTHUR J. SCHWAB, District Judge.
This is an action for Negligent Misrepresentation against Defendant, and for Trademark Infringement and other Counterclaims against Plaintiff. Although the factual and procedural history is storied and fraught with contention, the core of this lawsuit is a relatively straightforward commercial dispute. At the conclusion of trial, the jury unanimously found that Defendant made Negligent (and reckless) Misrepresentations. The verdict reflects that: Defendant materially misrepresented its ability and expertise in the safety testing and certification process with the product at issue, especially at its China facility; and second, Defendant materially misrepresented to Plaintiff that its product complied with United States safety standards, when it did not. The jury heard evidence that Defendant's testing, certification, and quality control business process was plagued with errors and inadequacies at numerous levels, all of which culminated in Plaintiff's detrimental and justifiable reliance on these material misrepresentations, and caused financial harm to Plaintiff's business.
David O. Brand, a small business owner from Pittsburgh and the principal of Brand Marketing Group LLC ("Plaintiff" or "Brand"), an inventor of portable vent-free space heaters, contracted with Reecon M & E Co. Ltd, ("Reecon"), a corporate entity (located in China) to manufacture his (mockup) space heaters to applicable North American safety standards ("ANSI standards"). Based upon the favorable results of the testing performed by Intertek Testing Services, NA. Inc. ("Defendant" or "Intertek"), a leading global safety testing company, and one in which non-party Reecon had contracted to perform testing services, Plaintiff then contracted with Reecon to produce, en-masse, the space heaters for shipment and ultimate sale to Ace Hardware, who had a purchase order for close to 4, 000 of the space heaters.
As mentioned, Defendant, who bills itself as a foremost "expert" in the field of safety testing and certification, has offices and testing facilities in North America, and in China, among others. The safety testing in this case was performed in Defendant's China lab, located in Guanzhou ("GZ"), because the China affiliate had alleged expertise in this field of safety testing and certification.
Following a three-day jury trial, the jury entered nearly two days of deliberation, in which it necessarily resolved numerous credibility determinations in favor of Plaintiff's and against Defendant's version of the facts (recounted below). The jury ultimately entered a unanimous verdict in favor of Plaintiff on its negligent misrepresentation claim and against Defendant, and awarded $725, 000.00 in past damages, $320, 000.00 in future damages, and $5 million in punitive damages. With respect to Defendant's three Counterclaims against Plaintiff, the jury found that Plaintiff infringed upon the intellectual property trademark rights of Intertek (ETL Listing) under the Lanham Act, but found it was not willful, and did not award compensatory damages or punitive damages against Plaintiff. The jury found in favor of Plaintiff on the two remaining Counterclaims. This verdict is supported by the testimony and evidence presented during trial.
In reaching its verdict, the jury must have determined that the evidence presented at trial established grave errors and inadequacies in Intertek's testing and certification process that allowed space heaters that did not comply with applicable safety standards in the United States (ANSI Standards) to be put into the stream of commerce. There was no dispute that the heaters were non-compliant with ANSI standards; rather, the dispute appeared to center upon whether these alleged "errors" and "mistakes" were negligent misrepresentations and/or were reckless, and/or whether the errors that Defendant made were the cause of the harm to Plaintiff, or whether Plaintiff's improper use of the certification mark (ETL listing) was the cause of the harm.
Defendant now seeks to attack nearly every portion of the trial, and urges this Court to usurp the legitimate conclusions of the fact-finders, who had ample competent evidence upon which to base its verdict.
Pursuant to Fed.R.Civ.P. 50 and 59, Defendant asks this Court to: (A) vacate the punitive damages and/or to grant a new trial, because the issue of punitive damages was not properly before the jury; (B) remit the punitive damages based upon an alleged constitutional violation; (C) vacate the compensatory damages; (D) grant a new trial because the liability verdict was "inconsistent;" and (E) grant a set-off against the compensatory sum awarded Plaintiff for the judgment that Intertek purchased. Defendant also moves this Court (see Section V(F)) for a new trial on the basis that this Court "unduly harmed Intertek" by allowing evidence of the amount Intertek paid for a judgment set-off while not allowing evidence of Plaintiff's violation of its competitor's patent.
A careful review of the arguments made by Defendant reveals that the issues it raises are not supported by, or are contrary to, the evidence of record, and potentially have been abandoned by Defendant during the pretrial or trial proceedings. The legal and factual underpinnings of the pretrial and trial process are sound and abundantly supported by the evidence, and for this Court to reduce or eliminate Plaintiff's claim and damages, would do nothing except to usurp the critical functions of the jury.
Furthermore, punitive damages were properly before the jury and the award by the jury is not grossly excessive; rather, it represents only a small fraction of the net worth of the Defendant, just one factor which shows that it is reasonable in light of the record. Moreover, the record evidence that was elicited throughout the proceedings, culminating with the testimony of Defendant's General Counsel, demonstrated that Defendant knew of the numerous grave "errors" and inadequacies in the testing and business process, but failed to take responsibility or adequately correct those problems. The evidence allowed the fact finder to reasonably conclude that the goal of the business dealings between the parties (from Defendant's perspective) was to make to make it "painful" and "personally difficult" for Plaintiff. There was ample evidence of recklessness to submit the question to a jury for it to determine whether punitive damages were warranted. Intertek's dissatisfaction with the verdict does not make it an "irrational" one, or one that should be disturbed.
For the myriad reasons that follow, the Court will deny Defendant's Motion for Post-Trial Relief pursuant to Fed.R.Civ.P. 50 and 59, on all arguments with the exception of Defendant's request for an equitable set-off, to which Plaintiff does not object, and this Court agrees is warranted.
II. Factual and Procedural History
By way of background, the facts as set forth in the pleadings, and as presented during trial, are as follows.
A. The Parties
Brand Marketing is a limited liability company which imports and sells vent free gas room heaters throughout the United States. Defendant, Intertek NA, is a subsidiary of Intertek Group PLC ("Intertek Group"), a multinational inspection, product testing and certification company headquartered in London. Intertek Testing Services Shenzhen, Ltd. ("Intertek Shenzhen") is a separate corporate subsidiary of Intertek Group located in Guangzhou, China. Id. Intertek NA is a nationally recognized testing laboratory accredited to certify products compliant with North American Safety Standards. However, Intertek Shenzhen, the location where the relevant testing in this matter took place, is not accredited to certify compliance with North American Safety Standards.
Prior to Brand's involvement in the circumstances at issue here, Reecon, a Chinese manufacturing company, had contracted with Intertek NA for testing of other unrelated products. Doc. No. 19 at Exhibit 4, and Doc. No. 31, Exhibit C.
B. Brief Factual History Surrounding Testing and Certification Process
Following Ace's indication of an intent to purchase the heaters in December 2010, Brand contacted Reecon regarding the manufacture of the heater. Once Brand received the purchase order from Ace on April 26, 2011, Brand worked with Reecon to have the heaters certified "compliant" with applicable ANSI standards, which govern unvented room heaters for sale in the United States.
Intertek NA provided testing and certification services for the heaters, in exchange for money paid by Reecon, in accordance with the Certification Agreement. The heaters were tested to the ANSI standards at Intertek Shenzhen, based upon oral and written representations by Defendant's salespersons that the Intertek China lab was best qualified to handle the testing and certification process. The trial testimony established that the testing process occurred from July 6, 2011, through July 22, 2011, and David Brand was in China during this time period. Based upon the favorable results of that testing, as listed in the Intertek Testing Data Sheet (dated July 22, 2011) (P-58), and after a meeting with the personal meeting with the engineers in China, Brand moved forward with mass production on July 26, 2011, when Brand signed a purchase order in the amount of $451, 482, with Reecon for approximately 5, 500 heaters, the majority of which went to Ace Hardware for October, 2011 shipment.
However, on November 14, 2011 (almost four months later), Intertek issued a Test Report certifying compliance with an ANSI standard. The trial testimony established that even though Intertek Shenzhen was not an accredited nationally recognized testing laboratory, on February 29, 2012, Intertek NA issued an "updated" Authorization to Mark ("ATM") indicating that a product complies with the standard it was tested to (in this case ANSI Z21.11). According to Plaintiff, the test report and ATM were representations made by Intertek NA that the heaters complied with the applicable ANSI standard. They did not. According to the trial testimony of Defendant's witnesses (Defendant's liability expert Steven Roll, and Defendant's Chief Engineer, Rick Curkeet), many mistakes (which are further addressed below) were made during the testing and certification process.
C. Ace Temporarily Restricts Sale of Thermablaster
On December 12, 2011, former defendant Continental Appliances, Inc., doing business as ProCom ("ProCom"), a direct competitor of Brand, and the only other company from whom Ace purchased vent free heaters, sued Brand for patent infringement. On December 14, 2011, ProCom sent Ace a letter advising of the alleged patent infringement. Ace temporarily restricted the sale and distribution of Brand's heaters. Following a brief investigation of the allegations surrounding infringement, the Thermablaster was put back on the market. On November 5, 2012, ProCom and Plaintiff settled their dispute. Doc. No. 61.
D. Defendant Contacts Ace Hardware
On March 8, 2012, Intertek suspended its listing and labeling privileges for Brand's heaters, and advised Reecon to quarantine all inventories of products covered by the November 14, 2011, test report. On March 12, 2012, Rick Curkeet, sent an email to Ace advising that "the Thermalblaster (sic) units have been found to be in non-compliance with the specified standard. We are expecting the manufacturer to take appropriate actions in this matter. Obviously you should quarantine those you have and keep them out of the market."
E. Ace Obtains Default Judgment against Plaintiff
On May 11, 2012, Ace formally notified Brand that it had breached its warranties to Ace, and demanded that Brand accept immediate return of the unsold heaters, and on July 9, 2012, filed a lawsuit against Brand seeking damages in the amount of $453, 221.74 for the unsold heaters, plus costs. Ace obtained a default judgment against Brand in the amount of $611, 060.45 (following an email exchange with Plaintiff in which he stated words to the effect that he did not care that this was the case). This judgment was assigned to Intertek and is the subject of much debate within these proceedings.
F. Plaintiff Commences Litigation against Defendant
(1) Original Pleadings
Brand filed suit in the Court of Common Pleas of Allegheny County, Pennsylvania, on September 20, 2012, and this matter was properly removed to this Court on October 30, 2012. Doc. No. 1. After two rounds of Motions to Dismiss and a Motion to Compel Arbitration, all of which were ultimately denied by this Court, on February 5, 2013, Plaintiff filed a Second Amended Complaint alleging the following tort theories: (1) Misrepresentation (Section 552 of the Restatement of Torts (Second)); (2) Interference with Contractual Relations; (3) Disparagement; (4) Corporate Defamation against Defendant Intertek, NA; and Counts (5) (6) and (7), for Disparagement, Corporate Defamation and Interference with Contractual Relations (respectively) against ProCom. Doc. No. 42. Plaintiff and ProCom, then filed a stipulation to strike certain allegations from the Second Amended Complaint, which this Court granted on March 21, 2013, thereby eliminating ProCom as a Defendant in this case. Doc. No. 47; See also Doc. No. 65.
Defendant Intertek then filed its Answer and Counterclaim, wherein it alleged Counterclaims of: (1) Defamation; (2) Commercial Disparagement; (3) Fraud; and (4) Unfair Competition/Trademark Infringement for Plaintiff's premature use of the Mark. Doc. No. 44.
(2) Cross-Motions for Summary Judgment
Plaintiff moved for summary judgment on the basis that, as a matter of law, Intertek is vicariously liable for the actions of its servant, Intertek Testing Services Shenzhen, Ltd and Intertek, negligently, and fraudulently, supplied information for the guidance of others that contains misrepresentations (false advertising and false safety test results) under Restatement of Torts 2d § 552. Plaintiff further moved for summary judgment on Intertek's Counterclaims for Trademark Infringement and Fraudulent Concealment, primarily on the basis that Intertek has unclean hands, and cannot establish damages as a matter of law. Doc. No. 76.
Defendant Intertek also moved for summary judgment, contending that Plaintiff cannot establish that a causal link between the alleged conduct of Intertek and Plaintiff's claimed damages. Additionally, Intertek argued that Plaintiff could not establish the required elements for its Defamation, Disparagement and Tortious Interference with Contract Claims. Doc. No. 72. Finally, Intertek moved for summary judgment as to its Fourth Counterclaim for Trademark Infringement/Unfair Competition. Doc. No. 74.
On June 10, 2013, the Court denied summary judgment to both parties on all counts of the Second Amended Complaint, or Defendant's Counterclaims, finding that they were factual disputes that must be determined by a jury. Doc. No. 89.
(3) Pretrial and Trial Proceedings
The trial was originally scheduled to commence on September 3, 2013. Because the parties were unable to reach agreement on many of the jury instructions and verdict slips during the pretrial proceedings, the Court undertook to draft and redraft several versions of the Final Jury Instructions, as the parties continued to dismiss Claims and Counterclaims all the way up until August 27, 2013 (less than a week before the originally scheduled trial). Doc. No. 175.
Despite the best efforts of this Court to conduct the pretrial proceedings in an organized fashion, the Court had difficulty focusing the parties on the pretrial process (the parties filed at least five revised versions of the verdict slip and jury instructions, and the Court had several meetings with the attorneys), and as a result, the Court was required to make numerous substantive changes to the jury instructions and verdict slips in the weeks, days, and hours leading up to the originally scheduled trial.
The Court also attempted to bring the parties together to mediate this case on numerous occasions, and the last scheduled mediation was before a mediator selected by the Court, Michael Betts. The Court ordered non-party Ace to attend, because it was obvious that the default judgment that it held against Plaintiff was an obstacle to any resolution of this case. Following the mediation, on August 30, 2013, the Court received a Motion from Intertek, seeking leave to file an Amended Answer and Counterclaim, and asking to include the fact that at the mediation of this matter, Intertek actually bought the default judgment of $611, 060.45 that Ace Hardware held against Plaintiff, leaving Intertek with a "setoff" which it wanted to include as a new Answer and Counterclaim.
On September 2, 2014, on the eve of originally scheduled trial, Brand filed a Motion for leave to file a Third Amended Complaint requesting to also include allegations related to the August 29, 2013 assignment of judgment. Because it was merely days/hours before the trial, among other reasons, the Court denied both parties' Motions to Amend their respective pleadings. Doc. No. 189.
However, unfortunately, on the morning of the scheduled trial, the Court was required to cancel the first trial in its tenure, due to illness. The Court rescheduled this trial for September 9, 2013. Because Brand had filed a Motion to Reconsider the Court's prior ruling denying the Motions to Amend Pleadings (doc. no. 191), the Court ordered the parties to meet and confer in an attempt to reach agreement on the effect of the settlement agreement and assignment of judgment.
Intertek then filed a Motion to Continue the trial date based upon unavailability of a witness, and this Court granted said Motion and reset the trial to begin on March 3, 2013. In light of the fact that the issue of untimeliness regarding the parties' Motions to Amend their Pleadings was no longer an issue, on September 6, 2013, the Court entered the following Text Order:
TEXT ORDER on Motion to Reconsider (191). Both parties have asserted that the Settlement Agreement between Ace Hardware (Ace Hardware) and Defendant Intertek Testing Services, NA (Intertek) and the assignment of the Ace Hardware judgment to Defendant Intertek should be made an integral part of the case (doc. nos. 180, 181, 183, 184, 186, 193, and 194) in one way or another. Upon further reflection; after consideration of Plaintiff's Motion (doc. no. 191), Defendant's Response in Opposition (doc. no. 193), and Plaintiff's Reply thereto (doc. no. 194); and with the postponement of the trial (doc. no. 195); this Court agrees, and therefore GRANTS Plaintiff's Motion for Reconsideration. Hereinafter, all issues relating to the Settlement Agreement, the assignment of the judgment, and the judgment itself (and any issues relating to the enforceability thereof) are made part of this action, including permitting the parties to refer to the fact that Defendant Intertek has obtained an assignment of the Ace Hardware Judgment. The parties may conduct discovery on the Settlement Agreement, the assignment of the judgment, and the judgment itself, which shall be completed on or before November 30, 2013. The parties shall file a status report thereon on or before December 7, 2013. Signed by Judge Arthur J. Schwab on 9-6-13. Text-only entry; no PDF document will issue.
On November 5, 2013, Defendant filed an Amended Counterclaim that included the Setoff Counterclaim. Notably, Intertek had originally stated it did not object to the fact that there was an assignment of the judgment and that it had bought the judgment, but stated that the amount paid for said assignment should be inadmissible. Specifically, Intertek has stated: "Defendant is not opposed to introducing the fact of the assignment of judgment, as Defendant itself has moved to amend its Answer and Counterclaim to reflect the same." Doc. No. 186, ¶ 7.
On January 31, 2014, Intertek filed a Motion in Limine (essentially a Motion to Reconsider) to exclude the settlement agreement from the trial of this matter. Plaintiff responded and quoted the above language from Defendant that the "fact of assignment of judgment" was admissible. Plaintiff also stated:
[T]he assignment of judgment relates to the basic issue of who should be compensated for Intertek's negligent and fraudulent conduct, and by how much. The jury is entitled to know the details concerning the settlement agreement and the consideration for the assignment. Only then can the jury determine how it might fashion a verdict to compensate Plaintiff for his losses, without unintentionally rewarding Intertek instead.
Doc. No. 232.
On February 7, 2014, the Court denied Defendant's Motion (to Reconsider) to Exclude the Settlement Agreement. Doc. No. 233. Thereafter, on February 19, 2013, Plaintiff filed a Motion to Withdraw the Claim of Fraudulent Misrepresentation, which this Court granted, thereby necessitating another change to the jury instructions and verdict slip, which now form the basis of Defendant's first argument relating to punitive damages.
The trial of this case commenced on March 3, 2013, and the case was submitted to the jury, after the final jury instructions were read to the jury, on March 5, 2013. It is important to note that Defendant did not make an objection to the jury instructions, as read, and responded with a "No" when this Court queried both parties on same. Doc. No. 284 at 172.
The jury reached its verdict on March 7, 2013. The jury found in Plaintiff's favor on the Negligent Misrepresentation Claim and found compensatory damages in the amount of $725, 000.00 in past damages, $320, 000.00 in future damages, and $5, 000, 000.00 in punitive damages. The jury also found in Defendant's favor on the Trademark Infringement Claim, but found the infringement was not willful and did not award any damages. The jury found in Plaintiff's favor on the remaining Counterclaims: that Brand did not fraudulently misrepresent itself to Intertek, and that Brand did not fraudulently conceal information from Intertek. The jury awarded no compensatory or punitive damages against Plaintiff.
On April 4, 2013, Defendant filed the instant Motion to Alter Judgment, for New Trial, and for Judgment NOV. Doc. No. 287. This Motion is now fully briefed.
III. Key Credibility Determinations Made by Jury
A. Negligent Misrepresentation Claim
With respect to Plaintiff's Negligent Misrepresentation Claim, the jury necessarily made the following credibility determinations:
(1) That Intertek made material misstatements and misrepresentations: (a) about the ability and expertise specifically of its China facility, to test to all ANSI standards, and the product at issue here, despite knowledge that it had never performed safety testing to this particular ANSI standard; (b) that it provided "expert third party testing to almost any product safety standard, including ANSI"; (c) that its representatives specifically recommended that the testing of its product occur in China, despite Principal David O. Brand's initial belief that it would have been safer to have the products tested in Intertek's United States laboratory; (d) that Brand personally met with Intertek NA representatives at a hearth, patio and barbeque show, who informed him of Intertek's competence with this safety testing; (e) that he also received a sheet (P12) stating that "Intertek has been testing and certifying hearth products for over 20 years, " and Intertek's website, which Brand reviewed, evidenced Defendant's expertise in testing for over 120 years; and finally, (f) that Brand had email exchanges with representatives of Intertek confirming much of the above, upon which he (and his company) justifiably relied to his detriment. See Doc. No. 283, at 25-33.
(2) Defendant's own expert witness on liability, Steven Roll, who Defendant retained despite his position as a former president of Intertek, testified to the errors in the testing, certification, and business process, including that in his professional opinion only one safety test was run on one of the models, despite the fact that there were three models numbers, two types of each (two different sources of fuel - propane and natural ...