Trademark Medical, LLC v. Birchwood Laboratories, Inc.

Citations: 22 F. Supp. 3d 998; 2014 U.S. Dist. LEXIS 70282; 2014 WL 2154147Docket: No. 4:12-CV-1890 JAR

Court: District Court, E.D. Missouri; May 22, 2014; Federal District Court

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Plaintiff Trademark Medical, LLC filed an original complaint against Defendant Birchwood Laboratories, Inc. in August 2012, alleging strict liability, failure to warn, and negligence due to a recall of its Plak-Vac Oral Care System kits. Birchwood removed the case to federal court in October 2012 and subsequently moved to dismiss the complaint, claiming it was barred by the economic loss doctrine. In response, Trademark Medical filed a First Amended Complaint in November 2012, adding warranty claims under the UCC and additional torts, including fraudulent misrepresentation, which alleged that Birchwood misrepresented the safety of its mouthwash for use in the oral care system.

Birchwood later moved to dismiss certain tort claims, but Trademark Medical voluntarily dismissed those claims, including fraudulent misrepresentation. The court deemed Birchwood's dismissal motion moot. A case management order set a deadline of June 1, 2013, for amendments to pleadings. In February 2014, Trademark Medical sought to amend its complaint to add punitive damages but withdrew the motion shortly after. In March 2014, Trademark Medical again requested leave to file a Second Amended Complaint to include claims for fraudulent misrepresentation and punitive damages, while dropping a breach of warranty claim. Birchwood opposed this motion on grounds of futility and failure to demonstrate good cause for amending past the deadline.

The legal standards for amending pleadings under Rule 15(a) and Rule 16(b) of the Federal Rules of Civil Procedure were outlined, emphasizing that amendments should be allowed unless there are compelling reasons against them, such as undue delay, bad faith, or futility.

A party seeking to amend a pleading after the court's established deadline must demonstrate 'good cause' under Fed. R. Civ. P. 16(b)(4), primarily assessed by the movant's diligence in adhering to the deadline. While potential prejudice to the nonmovant may be considered, it is generally disregarded if the movant lacked diligence. The court retains discretion to grant or deny such motions.

An amendment may be denied if deemed futile, meaning it would not survive a motion to dismiss under Rule 12. This requires that, when all facts are taken as true and in the light most favorable to the plaintiff, it is evident that no set of facts could warrant relief. Birchwood contends that Trademark Medical's fraudulent misrepresentation claim is futile due to the economic loss doctrine, which prevents recovery in tort for economic losses that are inherently contractual. Birchwood also argues that Trademark Medical failed to plead the fraud claim with the necessary specificity and that the punitive damages claim lacks support under the UCC, given the absence of a valid independent tort. 

The economic loss doctrine aims to uphold the integrity of UCC negotiations, shielding contractual cost and risk allocations from modification by tort law. While there are recognized exceptions to this doctrine in Missouri, such as fiduciary relationships or negligence in professional services, the current case does not meet these criteria. Missouri courts have not yet clarified the economic loss doctrine's application to fraud claims.

United States Magistrate Judge Terry I. Adelman reviewed Missouri and Eighth Circuit law concerning the economic loss doctrine, concluding that under Missouri law, a fraud claim aimed at recovering economic losses must be independent of a contract, or it will be barred by the economic loss doctrine. This principle is reinforced by the case of Zoltek Corporation v. Structural Polymer Group, Ltd., where fraud claims were deemed barred because they were not independent of the contract.

Two crucial factors determine the independence of a fraud claim from a contract claim: (1) whether the misrepresentations pertained to the subject matter of the contract, and (2) whether the plaintiff incurred additional damages outside the contract due to the alleged fraud. Trademark Medical contends that Birchwood misrepresented its mouthwash as safe and mixed with purified water, but since these representations concern the quality of the goods, the Eighth Circuit has ruled such fraud claims are redundant to warranty claims, thereby barred by the economic loss doctrine.

Trademark Medical’s reference to R.W. Murray Co. v. Shatterproof Glass Corp. is incorrect, as that case involved fraudulent inducement, which is typically considered independent of the contract. In contrast, Trademark Medical's claim is based on fraudulent misrepresentation, which does not meet the criteria for independence.

Regarding the second factor, Trademark Medical claims damages to its business reputation and goodwill, arguing these damages exceed mere economic losses related to the oral care kits. This aligns with Laidlaw Waste Systems v. Mallinckrodt, Inc., where the court allowed tort claims to proceed due to damage to property beyond mere economic expectations. Thus, Trademark Medical asserts claims for damages that go beyond the economic loss doctrine's limitations.

Laidlaw is not applicable since the economic loss doctrine under relevant law includes consequential economic losses, such as lost profits and goodwill (referencing Glaxosmithkline Consumer Healthcare, L.P. v. ICL Performance Products LP). Consequently, Trademark Medical's fraud claim is dismissed for failing to state a viable claim for relief, and allowing an amendment would be futile. Thus, the Court refrains from addressing Birchwood's argument regarding the lack of specificity in pleading as per Fed. R. Civ. P. 9(b). 

Under Missouri law, remedies for economic losses due to product defects are confined to UCC warranty provisions, which do not allow for punitive damages (citing cases including Renaissance Leasing, LLC v. Vermeer Mfg. Co.). As Trademark Medical has not established a valid independent tort, its claim for punitive damages fails. 

Additionally, Trademark Medical has not shown good cause for missing the June 1, 2013 deadline for amending pleadings. The justification provided—discovery of new facts post-December 30, 2013—lacks specificity regarding what facts were uncovered and why these could not have been asserted earlier. Trademark Medical had previously pled a fraudulent misrepresentation claim in November 2012 without needing the documents it claims to have discovered later. With discovery closed and Birchwood seeking summary judgment, the Court has deemed the proposed amendment futile and found no resulting prejudice from denying the second amended complaint.

Consequently, Trademark Medical's motion to supplement its motion for leave to amend is granted, while the motion to file a second amended complaint is denied. The Court acknowledges Birchwood's assumption that Missouri law applies, noting that under both Missouri and Minnesota law, a fraud claim is precluded by the economic loss doctrine unless it is shown to be independent from the contract or UCC claim.