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IN RE ENGINEERED FRAMING SYS., INC. v. VESCOM STRUCTURES

November 1, 2005.

Re: Engineered Framing Sys., Inc.
v.
Vescom Structures, Inc.



The opinion of the court was delivered by: WILLIAM MARTINI, District Judge

LETTER OPINION

Dear Counsel:

  This matter comes before the Court on defendant Vescom Structures, Inc.'s ("Vescom's") motion to dismiss Counts Three, Four, Seven and Eight of plaintiff Engineered Framing Systems, Inc.'s ("EFS's") First Amended Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Plaintiff EFS filed an opposition to that motion, as well as a cross-motion seeking leave to amend its First Amended Complaint. Vescom did not oppose EFS's motion to amend. There was no oral argument. Fed.R.Civ.P. 78. For the reasons stated below, defendant's motion is granted in part and denied in part and plaintiff's cross-motion is granted. BACKGROUND

  EFS is a subcontractor that performs carpenter and laborer construction work for developers on residential projects. In the past, EFS contracted with other companies to provide their joist systems in EFS's designs. Vescom, one of the companies EFS would contract with from time-to-time, distributes joist systems for use in residential apartment and condominium construction. Recently, EFS developed its own proprietary joist system for use in its designs. As a result, EFS now competes with Vescom for joint installation.

  In 2004, Vescom obtained a judgment in its favor against EFS in the amount of $577,000. Afterwards, according to EFS, Vescom began making statements to EFS's customers that disparaged the quality of EFS's joist systems and suggested that EFS's customers would have to pay for the judgment via the attachment process.

  On March 14, 2005, EFS filed a nine-count Complaint against Vescom, alleging various causes of action including slander (Counts One-Four), libel (Count Five), tortious interference with contractual relations (Count Six), tortious interference with prospective economic advantage (Count Seven), civil conspiracy (Count Eight), and RICO violations (Count Nine). Vescom filed a motion to dismiss all nine counts based on Rules 12(b)(1) and 12(b)(6). EFS opposed that motion and filed a cross-motion to amend Counts Six-Nine and its jurisdictional allegations. In response, Vescom filed a motion to strike EFS's cross-motion to amend. The matter was referred to Magistrate Judge Hedges. Ultimately, Judge Hedges denied Vescom's motions and granted EFS's cross-motion to amend because the complaint's deficiencies could be cured by amendment.

  On July 26, 2005, EFS filed an eight count First Amended Complaint.*fn1 Vescom now seeks to dismiss Counts Three, Four, Seven and Eight of the First Amended Complaint pursuant to Rule 12(b)(6). As it did before, EFS opposed that motion and filed a cross-motion to amend, now seeking to add a ninth count for product disparagement.

  ANALYSIS

  A. Standard of Review

  In deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) all allegations in the complaint must be taken as true and viewed in the light most favorable to the plaintiff. Warth v. Seldin, 422 U.S. 490, 501 (1975); Trump Hotels & Casino Resorts, Inc., v. Mirage Resorts Inc., 140 F.3d 478, 483 (3d Cir. 1998). In evaluating a Rule 12(b)(6) motion to dismiss for failure to state a claim, a court may consider only the complaint, exhibits attached to the complaint, matters of public record, and undisputedly authentic documents if the plaintiff's claims are based upon those documents. Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993). If, after viewing the allegations in the complaint in the light most favorable to the plaintiff, it appears beyond doubt that no relief could be granted "under any set of facts which could prove consistent with the allegations," a court may dismiss a complaint for failure to state a claim. Hishon v. King & Spalding, 467 U.S. 69, 73 (1984); Zynn v. O'Donnell, 688 F.2d 940, 941 (3d Cir. 1982).

  A motion to amend a complaint is governed by Federal Rule of Civil Procedure 15(a). Rule 15(a) provides that after a responsive pleading has been served, a plaintiff may amend the complaint "only by leave of the court or by written consent of the adverse party." Fed.R.Civ.P. 15(a). Leave is to be "freely given when justice so requires." Id. The touchstone regarding whether leave should be granted is "whether the non-moving party will be prejudiced if the amendment is allowed." Dole v. Arco Chem. Co., 921 F.2d 484, 488 (3d Cir. 1990). The policy favoring liberal amendment of pleadings, however, is not unbounded. James v. Interstate Credit & Collection, Inc., No. 03-1037, 2005 WL 1806486, at *1 (E.D. Pa. July 29, 2005). Rather, "certain factors which weigh against amendment, including `undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment, [and] futility of amendment.'" Id. (quoting Dole, 921 F.2d at 487).

  B. Counts Three and Four (Defamation) & Plaintiff's Cross-Motion to Amend (Product Disparagement)

  Counts Three and Four allege that Vescom made an oral, defamatory statement to two of EFS's customers. Specifically, Vescom is alleged to have told those customers that "EFS' joist system was inferior and not engineeringly proper." (First Am. Compl. ¶¶ 26, 33). Vescom seeks to dismiss Counts Three and Four on the basis that they fail to state a cause of action for defamation. Vescom argues that the statement cannot constitute defamation because it concerns EFS's product, not its reputation, and as such is properly categorized as product disparagement. EFS responds that the statements are actionable under both defamation and product disparagement. As a result, EFS opposes dismissal of Counts Three and Four, and seeks to amend its complaint to add a count for product disparagement. The Court agrees with plaintiff and finds that the statement can support claims for defamation and product disparagement.

  "As a general rule, a statement is defamatory if it is false, communicated to a third person, and tends to lower the subject's reputation in the estimation of the community or to deter third persons from associating with him." Lynch v. New Jersey Educ. Ass'n, 735 A.2d 1129, 1135 (N.J. 1999) (citing Restatement (Second) of Torts §§ 558, 559 (1977)).*fn2 As a cause of action, defamation "affords a remedy for damage to one's reputation." Diary Stores, Inc. v. Sentinel Publishing Co., 516 A.2d 220, 224 (N.J. 1986). By contrast, product disparagement "consists of the publication of matter derogatory to the plaintiff's title to his property, or its quality, or to his business in general, or even to some element of his personal affairs, of a kind calculated to prevent others from dealing with him or otherwise to interfere with others to his disadvantage." C.R. Bard, Inc. v. Wordtronics Corp., 561 A.2d 694, 696 (N.J.Super.Ct. Law Div. 1989). ...


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