United States District Court, E.D. Virginia, Alexandria Division
O'Grady, United States District Judge
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.
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
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.
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.
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.
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.
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
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.
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.
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.
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).
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.
Count II - Violation of the Connecticut Unfair Trade
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.
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.
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. 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!
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