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Metro Mail Services, Inc. v. Pitney Bowes Inc.

United States District Court, E.D. Virginia, Alexandria Division

March 31, 2017

Metro Mail Services, Inc., Plaintiff,
Pitney Bowes, Inc., Defendant.


          Liam O'Grady, United States District Judge

         This matter comes before the Court on Defendant Pitney Bowes, Inc.'s ('TBI") Motion to Limit Damages and to Dismiss Counts II and III of Plaintiff Metro Mail Services, Inc.'s ("MetroMail") First Amended Complaint ("FAC"). Dkt. No. 26. The dispute arises out of an allegation that Defendant breached its contract with the Plaintiff, fraudulently induced Plaintiff to enter into the contract, and engaged in unfair trade practices pursuant to Connecticut law. For the reasons discussed below, the Court GRANTS PN PART and DENIES IN PART the Motion. Count II is hereby DISMISSED and Defendant shall file an answer to Counts I and III of the FAC within ten (10) days of the entry of the order accompanying this memorandum opinion.

         I. Background

         Plaintiff and Defendant are both engaged in the United States postage meter industry-United States Postal Service Regulations prohibit the sale of postage meters used for printing official U.S. postage. Rather, the meters must be rented from autthorized manufacturers or third-party dealers. Both parties are engaged in the leasing of the meters, and attendant features like scales, "sealers", "feeders", and "inserters" to customers. Pitney also manufactures meters for sale and maintains an approximately 75% market share, against only three competing manufacturers.

         Plaintiffs owner, Luong Nguyen, worked as a service technician for Defendant from 1988 to 2000, at which point he left to form Plaintiff, Metro Mail Services Inc. Initially, Plaintiffs services were limited to repairing its customers" postage meters which were leased from other vendors. In 2003, Plaintiff entered into a dealer agreement with FP Mailing Solutions ("FP") a manufacturer of mailing equipment whereby Plaintiff leased FP meters and other equipment directly to its customers. The dealer agreement with FP placed Plaintiff in competition with Defendant's business. Plaintiff used its business strategy and its status as a qualified Small Business Enterprise to secure government contracts for which Defendant could not compete.

         Beginning in the fall of 2011, Defendant's Vice President for the Dealer Network, John Vavra, began recruiting Mr. Nguyen to sign Plaintiff as a dealer for Defendant's postage meters. The solicitations included multiple meetings in the DC Metro Area as well as in Connecticut where Defendant is based. Mr. Vavra also invited Mr. Nguyen on golf outings in Florida and Virginia where the dealer relationship was discussed. Mr. Nguyen also visited Defendant's executives at their Connecticut headquarters in the fall of 2012. In this meeting, Mr. Nguyen expressed concern about Defendant using its direct sales force to compete with Plaintiff. The executives assured Mr. Nguyen that they were committed to the dealer network and were reducing their direct sales force.

         In November 2012, Plaintiff and Defendant entered into a dealer agreement, the "PBI-Dealer Agreement" which permitted Plaintiff to serve as a dealer for meters manufactured by Defendant. Pursuant to the contract. Defendant agreed to payt:[a]ny commission or fee due to Dealer from [Defendant] for Dealer's role in any such transaction with [an agency or instrumentality of the United States government] shall be paid by [Defendant] to Dealer in accordance with the Policies and Procedures Manual." Dkt. No. 1, Exh. A, § 3.03(4). Defendant agreed to not use Plaintiffs customer information to market products directly to those customers unless it had Plaintiffs permission during the term of the agreement and for one year after. However, the agreement was not exclusive and did not prohibit Defendant from continuing to pursue new customers also targeted by Plaintiff. Pursuant to the agreement, Plaintiff also agreed to take out of service over 700 FP postage meters that it had leased to customers to be replaced with Defendant's meters. Doing so exposed all of Plaintiff s customer identities to Defendant.

         After entering into the agreement. Defendant began directly soliciting Plaintiffs customers. Defendant would offer a lower discount on the its products than Plaintiff could offer under the terms of the PBI-Dealer agreement. For example, on a July 2016 bid for a contract with the U.S. Patent and Trademark Office, Defendant bid at a price 21% lower than Plaintiffs cost for the same products. Defendant also offered free maintenance services and made disparaging statements to Plaintiffs customers about the quality and capacity of Plaintiff s maintenance services. Plaintiff notified Defendant in mid-2015 that it objected to this conduct but continued to operate under the PBI-Dealer Agreement.

         By letter dated July 21, 2015, the parties entered into an accord to modify the PBI-Dealer Agreement. The revised agreement granted Plaintiff pricing for Defendant's products consistent with the prices offered by the Defendant to its Government Administration Services clients. Plaintiff alleges that despite this new agreement, Defendant further interfered with the contractual relationship in a number of ways. First. Defendant protested the award of a "small business set aside" contract awarded to Plaintiff claiming that it should be allowed to directly bid on the contract. The bidding process was reopened. Plaintiff ultimately won the bid during the rebidding process but at greater cost. Second, Defendant refused to pay a 27% required commission on a contract between Plaintiff and the Department of Veterans Affairs. Third, Defendant "co-opted" Plaintiff's largest account, resulting in substantial damages to Plaintiff. Fourth, Defendant employed telemarketers to regularly market sales, upgrades, supplies, and services to Plaintiffs customers in breach of the PBI-Dealer Agreement.

         By mid-July 2016, Plaintiff had converted almost all of its FP postage meters to Defendant's meters. Around the same time, Defendant notified Plaintiff that it was not going to agree to a renewal of the PBI-Dealer Agreement, terminating the parties' relationship effective November 1, 2016.

         Plaintiff filed a Complaint on November 10, 2016 alleging three counts: breach of Contract (Count I), violation of the Connecticut Unfair Trade Practices Act ("CUTPA") (Count II), and Fraudulent Inducement (Count III). Defendant moved to dismiss Counts II and III pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim and to limit damages. Dkt. No. 9. The Court conducted a hearing in this matter on January 13, 2017 and dismissed Counts II and III without prejudice and reserved comment on the limitation of damages issue. Dkt. No. 21. Plaintiff filed the FAC on January 27, 2017. Dkt. No. 23. Defendant again moved to dismiss Counts 11 and III and to limit damages. Dkt. No. 26.

         II. Legal Standard

         To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must contain sufficient factual information to "state a claim to relief that is plausible on its face." Bell Ail Corp. v. Twombly, 550 U.S. 544, 550 (2007). A motion to dismiss pursuant to Rule 12(b)(6) must be considered in combination with Rule 8(a)(2), which requires "a short and plain statement of the claim showing that the pleader is entitled to relief, " Fed.R.Civ.P. 8(a)(2), so as to "give the defendant fair notice of what the ... claim is and the grounds upon which it rests." Twombly, 550 U.S. at 555. While "detailed factual allegations" are not required, Rule 8 does demand that a plaintiff provide more than mere labels and conclusions stating that the plaintiff is entitled to relief. Id. Because a Rule 12(b)(6) motion tests the sufficiency of a complaint without resolving factual disputes, a district court '"must accept as true all of the factual allegations contained in the complaint' and 'draw all reasonable inferences in favor of the plaintiff.'" Kensington Volunteer Fire Dep't v. Montgomery County, 684 F.3d 462, 467 (4th Cir. 2012) (quoting E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011)).

         For allegations of fraud, Federal Rule of Civil Procedure 9(b) requires the plaintiff to "state with particularity the circumstances constituting fraud or mistake." Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783-84 (4th Cir. 1999). A lack of compliance with Rule 9(b)'s pleading requirements is treated as a failure to state a claim under Rule 12(b)(6). Smith v. Clark/Smoot/RusselL 796 F.3d 424, 432 (4th Cir. 2015).

         III. Analysis

         Defendant moves the Court to dismiss Count II (violation of the Connecticut Unfair Trade Practices Act) and Count III (Fraudulent Inducement) because Plaintiff has failed to state a claim for either of these counts. Defendant also contends that the language in the PBI-Dealer Agreement and controlling case law requires a dismissal of any claims for punitive or consequential damages. Finally, Defendant argues that the economic damages award is limited by contract to no more than the total payments that would have been made under the contract in the last six months and punitive damages are limited to $350, 000 pursuant to Virginia law. This memorandum addresses each issue in turn.

         A. Count II - Violation of the Connecticut Unfair Trade Practices Act

         Defendant seeks dismissal of Count II for three reasons. First. Defendant contends that CUTPA is a tort action for purposes of choice of law analysis pursuant to which the alleged injury is governed by Virginia substantive law which does not recognize the CUTPA action. Second, even if CUTPA does apply to the agreement it cannot be applied in this case because all of the allegedly unfair conduct occurred in Virginia. Third, Plaintiff fails to allege "substantial aggravating circumstances" as required for a CUTPA unfair trade practice claim, and its claim is merely duplicative of its breach of contract claim in Count I.

         Respecting Defendant's first argument, the parties dispute whether Virginia or Connecticut law applies to the CUTPA claim. Because federal jurisdiction for this case depends on diversity of citizenship, "the applicable law must be determined by the choice of law rules in the forum state." Bremile v. General Tire & Rubber Co., 408 F.2d 116 (4th Cir. 1969). Determining the choice of law rules for the forum state in this case is complicated because the parties dispute whether a CUTPA claim is an action in tort or contract.

         Defendant contends that CUTPA is a tort action created by statute. Accordingly, Defendant argues that Virginia's choice of law rule for torts, which applies the law of the state where the harms were suffered, should apply to the case. Defendant contends that it is irrelevant that its agents and headquarters are in Connecticut because the harm occurred in Virginia where Plaintiffs business and its relationship with its Virginia-area customers were affected. Anticipating a likely counterargument, Defendant also contends that the parties' choice of law clause in the PBI-Dealership Agreement does not require the application of Connecticut law to a tort action.[1] Defendant points to a nearly identical choice of law provision in Western Dermatology Consultants, P.C. v. Vital Works, Inc.146 Conn.App. 169 (2013) rev'din part322 Conn. 541 (20! 6).[2] In Western Dermatology, the appeals court found that the choice of law provision did not govern CUTPA claims because "[t]he applicability of CUTPA is not an issue of construction or interpretation of the contract." Id. at 203. In Defendant's view, CUTPA is a tort action so Virginia's choice of law for torts applies and ...

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