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Covertech Fabricating, Inc. v. Tvm Building Products, Inc.

United States District Court, W.D. Pennsylvania

June 11, 2014



KIM R. GIBSON, District Judge.

I. Introduction

Plaintiff Covertech Fabricating, Inc. ("Covertech"), a manufacturer of insulation products, brings this action against its former distributor, Defendant TVM Building Products, Inc. ("TVM"), for claims relating to trademark infringement, dilution, unfair competition, breach of contract, and fraud. Presently before the Court is Covertech's motion to dismiss Count IV of TVM's amended counterclaim. (ECF No. 53). For the reasons that follow, Covertech's motion will be denied.

II. Jurisdiction and Venue

The Court exercises diversity jurisdiction over TVM's counterclaims pursuant to 28 U.S.C. § 1332(a) because the amount in controversy exceeds $75, 000, exclusive of interest and costs, and the suit is between citizens of different states. Venue is proper under 28 U.S.C. § 1391(b)(2) because a substantial portion of the events or omissions giving rise to the claims occurred in this judicial district.

III. Background

Covertech is a Canadian manufacturer of insulation products. Covertech markets, sells, and distributes its products through distributors and direct commercial sales. (Compl. ¶ 6). TVM is an Illinois corporation with its principal place of business located in Johnstown, Pennsylvania. ( Id. ¶ 7). TVM serves as a distributor of insulation and other building products manufactured by other companies. ( Id. ¶ 8).

Beginning in 1998, Covertech and TVM formed a business relationship in which TVM marketed and sold Covertech insulation products in the United States. (Compl. ¶¶ 29-32). According to Covertech, the parties entered into a verbal "exclusive distribution agreement" where TVM served as Covertech's exclusive distributor of RFOIL, a reflective insulation material. ( Id. ¶ 30). TVM claims that, although the parties never executed a written agreement, they reached an "oral understanding that Covertech would only sell product in the United States through TVM and TVM would only market Covertech's reflective insulation products." (ECF No. 60-2 at 4).

Covertech terminated the exclusive distribution agreement in or around 2006 after allegedly discovering that TVM had been distributing insulation products made by other manufacturers. (Compl. ¶ 33). TVM initially continued to serve as a non-exclusive distributor for Covertech, buying Covertech's products and selling them under its own private label. ( Id. ¶ 35). Eventually, the parties ceased doing business entirely because TVM allegedly failed to pay Covertech's invoices. ( Id. ¶ 39).

On May 21, 2013, Covertech filed a complaint against TVM, asserting claims such as trademark infringement, breach of contract, and fraud. According to Covertech, TVM continues to use Covertech's name, trademarks, and brands in connection with the sale of insulation products made by other companies. (Compl. ¶¶ 40-53). As well, Covertech asserts that TVM fraudulently provided Covertech warranties on insulation made by other companies and that Covertech has spent thousands of dollars settling warranty claims for defective insulation that Covertech did not manufacture. ( Id. ¶¶ 54-61). Even further, Covertech claims that TVM breached its agreement to pay Covertech in accordance with certain settlement agreements on warranty claims. ( Id. ¶¶ 62-71).

In response, TVM has filed an amended counterclaim, asserting, among other things, a claim of fraud against Covertech. TVM avers that, beginning in 2004, it received warranty claims from customers regarding the degradation of RFOIL. (Am. Countercl. ¶¶ 199-202). Covertech allegedly informed TVM that this degradation-which consisted of cracking and flaking of the product surface-was due to sunlight emitted into open-sided buildings. In 2005, and after consulting with Covertech, TVM issued an Urgent Notice to its customers warning them not to use RFOIL in buildings "where RFOIL would be exposed to direct sunlight or reflective light from the floor." ( Id. ¶ 204). The Urgent Notice further stated that the "[u]se of these products in buildings with skylights is acceptable since UV light is diffused by the glass." ( Id. ).

In 2007, TVM received additional warranty claims on the RFOIL. (Am. Countercl. ¶ 208). At that time, Covertech allegedly informed TVM that any exposure to sunlight- whether direct or indirect-would cause degradation to the RFOIL. ( Id. ). TVM further claims that, due to the RFOIL degradation problem, it has experienced a "dramatic and precipitous decline" in sales and that selling defective product has harmed its business reputation. ( Id. ¶¶ 211-12).

According to TVM, it was not until a November 17, 2011 deposition of Furio Orologio-the President of Covertech-that TVM discovered the supposedly fraudulent conduct now at issue. In a separate litigation in which both Covertech and TVM were defendants, Orologio apparently testified that "Covertech was aware since 2004, and possibly as early as 1998, that the RFOIL could not withstand either direct or indirect sunlight." (Am. Compl. ¶ 214). Based on Orologio's sworn statement, TVM claims that Covertech knew since 2004 that "[a]ny type of exposure to UV rays, even through windows, skylights[, ] or open doors, would cause degradation." ( Id. ).

In support of its fraud claim, TVM asserts that it had no reason to believe Covertech knew since at least 2004 that any type of exposure to sunlight would cause degradation to the RFOIL. (Am. Compl. ¶ 215). TVM further asserts that it relied on Covertech's expertise regarding the suitability of the RFOIL and that Covertech should have known that the RFOIL would be used in buildings with skylights. ( Id. ¶¶ 217-18). Finally, TVM asserts that, despite knowing the full extent of the degradation issue, "Covertech actively perpetuated its deceit by assisting in the preparation of and approval of the language contained in the Urgent Notice which advised customers that the RFOIL could be used in buildings with skylights." ( Id. ¶ 220).

Covertech now moves to dismiss TVM's fraud claim under Federal Rule of Civil Procedure 12(b)(6). The motion has been fully ...

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