Rapid Models & Prototypes, Inc. v. Innovated Solutions
Docket: Civil No. 14-277 (NLH/KMW)
Court: District Court, D. New Jersey; December 28, 2014; Federal District Court
Defendant 3D Systems Corporation's motion to dismiss the amended complaint is granted, while Defendant Innovated Solutions, LLC's motion is granted in part and denied in part. The Court has jurisdiction under 28 U.S.C. 1332 due to the diversity of citizenship and the claim for damages exceeding $75,000. Plaintiffs, Rapid Models Prototypes, Inc. (RMP), Joseph Pizzo, and Angela Pizzo, initially filed a civil action in New Jersey, which 3D Systems removed to federal court based on diversity. After the Plaintiffs amended their complaint, Defendants argued that the amendments did not address the deficiencies in the original complaint.
The amended complaint alleges that 3D Systems manufactures a three-dimensional printer, the Projet SD 3000, capable of producing mass items from raw materials. RMP entered a lease agreement with U.S. Bancorp for this machine, which Innovated Solutions was to supply. Plaintiffs assert that the lease was effectively a sales contract for the machine. Innovated Solutions is described as an authorized reseller for 3D Systems, which allegedly knew RMP’s intended use for the machine was critical to its business operations.
Plaintiffs claim the machine was defective upon acquisition, failing to perform its intended functions, with issues including malfunctioning electronic components and unreliable circuitry. These defects allegedly led to production delays, customer complaints, and a loss of business for RMP. Additionally, Plaintiffs assert that the machine was sold with express warranties from 3D Systems.
Plaintiffs notified Innovated Solutions of a malfunctioning machine, requesting repairs that were not fulfilled, leading to RMP's inability to use the machine and resulting in lost customers and business opportunities. Consequently, Plaintiffs filed a civil action against Innovated Solutions and 3D Systems, asserting multiple claims, including breach of contract against Innovated Solutions (Count I) and various breaches of implied and express warranties, fraud, negligent misrepresentation, and violations of the New Jersey Consumer Fraud Act against both defendants.
Defendants moved to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(6), arguing that it failed to state a claim, particularly the fraud-related claims, which they contended did not meet the heightened specificity required under Federal Rule of Civil Procedure 9(b). The court's standard for evaluating such motions requires accepting all well-pleaded allegations as true and viewing them favorably for the plaintiff, while determining if the complaint contains sufficient factual matter to present a plausible claim for relief without imposing a probability requirement. The burden is on the defendants to demonstrate that no claim has been established.
A court reviewing a Rule 12(b)(6) motion must evaluate the facts in the pleadings, attached documents, and public records, as established in Guidotti v. Legal Helpers Debt Resolution. Authentic documents relevant to the claims can be considered if undisputed. If additional matters are presented without exclusion, the motion is treated as one for summary judgment under Rule 56. Defendants argue that Plaintiffs’ claims for fraud, negligent misrepresentation, and violations of the New Jersey Consumer Fraud Act require heightened pleading under Federal Rule of Civil Procedure 9(b), which mandates detailed allegations of fraud, including specific circumstances, timing, and content of misrepresentations, while allowing general statements regarding malice or intent. The objective of Rule 9(b) is to ensure clear notice of the alleged misconduct to prevent false claims.
In addressing the choice of law, the court must identify which state's law applies to the claims since they are based on state law. The parties did not initially discuss the choice of law, focusing only on New Jersey law. The court ordered supplemental briefs on the issue, recognizing interests from South Carolina, Pennsylvania, and New Jersey due to the parties' citizenship. In diversity cases, federal courts use the forum state's choice of law rules, and New Jersey applies the "most significant relationship" test per the Restatement (Second) of Conflict of Laws.
The most significant relationship test requires a two-step analysis to determine the applicable law in cases with potential conflicts. First, the Court assesses if there is an actual conflict between New Jersey law and another state's law. If no conflict is found, New Jersey law is applied. If a conflict exists, the Court then evaluates which state has the most significant relationship to the claim, using factors from the Restatement relevant to the plaintiff's cause of action.
Defendants assert that New Jersey law should apply based on an implied agreement regarding the plaintiffs' claims. In contrast, Plaintiffs contend they did not concede this point, citing New Jersey law only due to filing in New Jersey Superior Court and the defendants' motion to dismiss. The Court rejects the defendants' argument that the initial filing in New Jersey necessitates applying New Jersey law, referencing previous cases where the choice of law analysis was conducted post-removal from state court.
Defendant 3D Systems argues that New Jersey law governs all claims based solely on the significant relationship test, but fails to address whether actual conflicts exist for each claim. Plaintiffs assert it is premature to decide the choice of law at this stage of litigation. The Court acknowledges that a choice of law analysis may be inappropriate during the motion to dismiss phase without sufficient discovery but notes that some issues may still be resolved without a full factual record. Thus, the Court will perform a preliminary choice of law analysis for each issue to determine if further discovery is needed.
Count VIII alleges a breach of express warranty by the Defendants, claiming they promised that the machine would function reliably, be free from defects in materials and workmanship, and be promptly repaired if it failed to perform as expected. These assurances were communicated through various promotional materials and directly by Defendants’ representatives, including Eric Wonderling. In their motions to dismiss, Defendants reference a Warranty attached to a declaration from John Calhoun, asserting this document is relevant to the case. Plaintiffs contend the Court should disregard the Warranty as it is extraneous to the pleadings and argue their express warranty claim is based on other sources, including materials from 3D Systems’ website. Although Plaintiffs acknowledge the Warranty shares similar language with their claim, they maintain it is not the basis for their allegations. The Court can consider documents integral to the complaint without converting the motion into a summary judgment motion, and it notes that Plaintiffs cannot prevent examination of relevant documents simply by not attaching them. However, the Court finds that the Amended Complaint does not meet the pleading requirements of Federal Rule of Civil Procedure 8, which necessitates a clear statement of the claim and its basis to provide fair notice to the Defendants.
Plaintiffs must provide sufficient factual allegations to establish a right to relief beyond mere speculation. Their express warranty claim is based on an unspecified warranty referenced in various promotional materials but lacks direct quotations, attachments, or specific sources in the amended complaint. Even when presented with a warranty document, Plaintiffs fail to offer a different version or additional facts to clarify their claim. As a result, Defendants cannot adequately defend against the breach of express warranty claim, leading the Court to dismiss this claim (Count VIII) without prejudice due to insufficient factual support.
In Counts II through VII, Plaintiffs assert claims for breach of implied warranties, including fitness and merchantability. Defendants contend these claims are subject to dismissal because they disclaimed all implied warranties in the warranty attached to the Calhoun Declaration. The Court notes that the law in all three relevant states allows for the disclaimer of implied warranties in writing. Federal law under the Magnuson-Moss Act also governs warranty disclaimers for consumer products, superseding state laws that do not provide greater consumer rights. Thus, a full choice of law analysis is unnecessary, as the Magnuson-Moss Act's provisions take precedence over the Uniform Commercial Code (UCC) and conflicting state statutes.
Defendants' reliance on the Warranty disclaimer for dismissing the express warranty claim is rejected, as the Court cannot consider it in the current motions. Their motions to dismiss are denied without prejudice, allowing Plaintiffs to file a revised pleading with sufficient details regarding their express warranty claim. If a revised pleading is submitted, Defendants may renew their motion to dismiss if they can argue that the implied warranties were properly disclaimed.
In Count IX, Plaintiffs allege fraud based on Defendants' misrepresentations about the machine's quality and effectiveness, asserting that these misrepresentations induced reliance and that RMP would not have acquired the machine without them. The statute of limitations for fraud varies by state: New Jersey permits six years, Pennsylvania allows two years, and South Carolina provides three years. Plaintiffs filed their complaint on August 2, 2013, and while the amended complaint lacks specific dates, it indicates that RMP entered a lease in May 2011 and discovered defects shortly thereafter. Under Pennsylvania law, the fraud claim would be time-barred due to the filing delay. Conversely, if New Jersey or South Carolina law is applied, the claim may be timely. The Court must resolve the conflict in statutes of limitations by applying the "most significant relationship" test from the Restatement (Second) of Conflict of Laws, specifically Section 148, which distinguishes between misrepresentations made where reliance occurred and those made in different states. Defendants argue that Section 148(1) applies since the representations were made and relied upon in New Jersey, while Plaintiffs contend that the choice of law issue is premature. The Court intends to follow precedent indicating that the misrepresentations were made at Defendants' headquarters rather than in Plaintiffs' home state.
The case is governed by subsection (2) of the Restatement (Second) of Conflict of Laws, which requires consideration of specific contacts to determine the applicable law. These contacts include: where the plaintiff relied on the defendant’s representations, where the plaintiff received those representations, where the defendant made them, and the parties' domiciles and business locations. In this case, the plaintiffs are New Jersey residents who received representations and had the machine delivered in New Jersey. The defendant 3D Systems made representations in South Carolina, while Innovated Solutions did so in Pennsylvania. The plaintiffs were to perform in New Jersey, leading the court to favor New Jersey law based on four of the six factors.
New Jersey law outlines five elements for common law fraud: 1) a material misrepresentation of a fact, 2) the defendant's knowledge of its falsity, 3) intent for the other party to rely on it, 4) reasonable reliance by the other party, and 5) resulting damages. Under Rule 9(b), fraud claims must specify the date, time, and place of the alleged fraud. The plaintiffs acknowledge their complaint lacks detail and intend to identify responsible individuals during discovery. However, the court argues that the plaintiffs should already possess sufficient information about the misrepresentations to provide specific details regarding the documents reviewed and the oral representations made. The complaint only mentions that the lease agreement for the machine was entered into around May 2011, without further clarification on the timing of the alleged misrepresentations. Overall, the plaintiffs fail to adequately detail the fundamental aspects of their fraud claim.
Plaintiffs failed to specify which documents they claim contain misrepresentations, nor did they provide quotes to alert Defendants to the alleged misrepresentations. Additionally, Plaintiffs did not allege that Defendants were aware the representations were false, a necessary element for a fraud claim under New Jersey law. Consequently, Count IX is dismissed without prejudice.
In Count X, Plaintiffs assert a negligent misrepresentation claim, alleging that Defendants misrepresented the quality of a machine to induce reliance by Plaintiff RMP, asserting that they would not have purchased the machine otherwise. Defendants argue that Plaintiffs did not plead this claim with the specificity required by Rule 9(b) and that the claim is barred by New Jersey’s economic loss doctrine.
The statute of limitations for negligent misrepresentation varies by state: Pennsylvania has a two-year limit, New Jersey a six-year limit, and South Carolina a three-year limit. Due to the differing statutes, the claim would be time-barred under Pennsylvania law. The Court decides to apply New Jersey law, as it was determined to be the plaintiffs' home state.
Under New Jersey law, to establish a negligent misrepresentation claim, a plaintiff must demonstrate an incorrect statement negligently made, justifiable reliance, and resulting economic loss. There is a split among courts regarding the pleading standard for negligent misrepresentation, with some courts requiring compliance with Federal Rule of Civil Procedure 9(b).
Courts have generally refrained from applying Rule 9(b) to negligent misrepresentation claims, as seen in several cases. However, this Court determines that the Plaintiffs' claim is barred by the economic loss doctrine, which restricts recovery for defective goods to remedies under the Uniform Commercial Code (U.C.C.). Defendants raised this doctrine in their briefs, but Plaintiffs did not counter the argument or provide evidence to show their claims are not barred.
The New Jersey Supreme Court, in *Spring Motors Distributors, Inc. v. Ford Motor Co.*, established that a commercial buyer can only recover economic losses from defective goods through breach of warranty under the U.C.C., not through strict liability or negligence. This distinction is based on the differing purposes of tort and contract law, with tort duties aimed at protecting society from harm, while contractual duties arise from fulfilling promises. The Court concluded that contract law via the U.C.C. is more suitable for resolving disputes over economic expectations between commercial parties.
Subsequent rulings, including *Alloway v. Gen. Marine Indus. L.P.*, extended this economic loss doctrine to consumers, asserting that tort claims for economic losses that duplicate U.C.C. remedies are unnecessary and counterproductive. The U.C.C. aims to balance the risk of loss between manufacturers and purchasers regarding economic losses from defective products. Thus, in New Jersey, the U.C.C. serves as the exclusive remedy for claims of economic loss due to defective products, particularly when damages pertain only to the product itself without personal injury or property damage.
In this case, Plaintiffs are claiming damages solely related to the malfunction of a machine, including lost production time and inability to meet delivery schedules, without asserting personal injury or damage to other property. The Court also notes that the parties had equal bargaining power in this context.
Plaintiffs allege they would not have purchased a machine had they been aware it would not operate as represented, thereby avoiding related expenses and seeking alternative equipment. Their claim for negligent misrepresentation, based on economic losses rather than personal or property damage, is barred by New Jersey's economic loss doctrine and will be dismissed with prejudice.
In Count XI, Plaintiffs assert a violation of the New Jersey Consumer Fraud Act (NJCFA), which is based on prior misrepresentations linked to their common law fraud claim. The NJCFA is recognized as one of the strongest consumer protection laws, allowing private class actions and treble damages, in contrast to other states' statutes, such as Pennsylvania's Unfair Trade Practices and Consumer Protection Law (UTPCPL), which requires proof of reliance, and South Carolina's Uniform Trade Practices Act (UTPA), which necessitates showing adverse public interest impact.
Due to these conflicts, the Court applies the most significant relationship test, considering factors from the Restatement (Second) of Conflict of Laws. Having previously analyzed these factors in relation to the common law fraud claim, the Court concludes that New Jersey law is applicable to the Plaintiffs’ statutory consumer fraud claim.
Any individual who experiences a measurable loss of money or property due to another's unlawful practices, as defined by N.J. Stat. Ann. 56:8-19, may assert a claim under the New Jersey Consumer Fraud Act (NJCFA). To successfully establish this claim, a plaintiff must demonstrate: 1) an unlawful act by the defendant, 2) an ascertainable loss suffered by the plaintiff, and 3) a direct causal connection between the unlawful act and the loss. An unlawful practice can include affirmative acts, knowingly omitting information, or violating regulations. Plaintiffs must adhere to the heightened pleading standard set forth in Federal Rule of Civil Procedure 9(b). In this case, the court found that the plaintiffs' NJCFA claim lacked sufficient factual support, mirroring the deficiencies of their fraud claim. Consequently, the NJCFA claim was dismissed without prejudice due to insufficient specificity.
Regarding the breach of contract claim against Innovated Solutions, the court clarified that this claim is distinct from any express warranty claims. The plaintiffs assert that their lease agreement with Bancorp functioned as a sales contract for a machine from Innovated Solutions to RMP, emphasizing that the machine's proper functioning was crucial for RMP's business operations. The plaintiffs allege that Innovated Solutions breached this contract by delivering a defective product. The court noted that Innovated Solutions had failed to provide grounds for dismissal of the breach of contract claim under Rule 12(b)(6), indicating that this claim stands apart from warranty issues.
Defendant Innovated Solutions’ motion is denied without prejudice, except for the express warranty claim. The Court concludes that the Plaintiffs’ amended complaint does not satisfy the pleading standards under Federal Rule of Civil Procedure 12(b)(6), leading to the dismissal of claims in Counts II through VIII, IX, and XI without prejudice, allowing for the possibility of an amended pleading. The claim in Count X for negligent misrepresentation is dismissed with prejudice due to the economic loss doctrine. Count I, concerning breach of contract, remains intact, and Innovated Solutions may address this claim in any amended complaint filed by the Plaintiffs.
The amended complaint identifies "Innovated Solutions" and "AretelRC, LLC" as separate entities, but it states they are the same company. The CEO of Innovated Solutions, Eric Wonderling, confirms this identity in a declaration. The Court will refer to both entities as "Innovated Solutions." Individual plaintiffs are bound by a continuing guaranty related to lease obligations, including rental payments. Innovated Solutions did not submit a separate brief but relied on 3D Systems’ filings. The Court finds that the rationale from In re Burlington Coat Factory is relevant to the warranty claims presented by the Plaintiffs, similar to previous case law in the district. The Court notes that since the Plaintiffs incorporated the Owner’s Manuals into their complaint, these documents are integral to their claims and will be considered in the motion to dismiss.
The express warranty claim relies on a written warranty that the Plaintiffs have not provided or sufficiently identified, leading to a lack of clarity for the Defendants regarding the source of the claim. Although Plaintiffs assert they need to ascertain the origins of video presentations and promotional materials related to warranties, they previously claimed to know about these warranties and relied on them when purchasing the machine. The Court emphasizes that any future motions must address choice of law, as prior supplemental briefs failed to engage with the “most substantial relationship” test and focused only on the Restatement factors, which are irrelevant without an actual conflict between state laws.
The amended complaint lacks specificity, notably failing to identify the individual who communicated misrepresentations to the Defendants, with only Eric Wonderling of Innovated Solutions mentioned. However, there are no allegations supporting that Wonderling acted on behalf of Defendant 3D Solutions. Plaintiffs’ claims rely on mere beliefs rather than facts, which does not satisfy the heightened pleading standards under Rule 9(b). The Court mandates that when multiple defendants are involved, allegations must distinctly attribute wrongful conduct to each defendant. Failure to do so can lead to dismissal of fraud claims. Additionally, the Court notes that not responding to arguments made in a motion to dismiss can result in a waiver of claims, as demonstrated in past cases, thus allowing the Court to dismiss the negligent misrepresentation claim based solely on this failure.
Economic loss includes damages for repair costs, replacement of defective goods, inadequate value, and consequential profit losses, as well as decreased product value due to inferiority. The parties have not discussed whether statutory claims require a choice-of-law analysis, but courts typically apply choice of law principles to both common law and statutory claims. For instance, in *Curtiss-Wright Corp. v. Rodney Hunt Co. Inc.*, the court conducted a choice-of-law analysis for both types of claims. The amended complaint does not adequately specify an "ascertainable loss" as mandated by the New Jersey Consumer Fraud Act (NJCFA). The plaintiffs claim that a malfunctioning printer led to product defects and customer complaints, resulting in delays, lost production time, and lost customers. However, they fail to specify which customers were lost, the extent of production losses, or the costs incurred for replacements, rendering their allegations insufficiently detailed. The court notes that the breach of contract claim does not meet the pleading standards set by *Twombly/Iqbal* but highlights that Innovated Solutions did not effectively address this issue.
