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Rosenthal v. R. W. Smith Co.

United States District Court, W.D. Virginia, Lynchburg Division

May 3, 2017

Richard Rosenthal, Counterclaimant,
R. W. Smith Company, Counterdefendant.



         Judge Norman K. Moon The parties in this case entered into a contract related to the renovation of a Kroger store. R.W. Smith Company (“RWS”) was the general contractor on the project, while Richard Rosenthal was the President of a plumbing subcontractor called M.E.P. Mechanical, Inc. (“MEP”). MEP employed subcontractors to provide labor for the Kroger project, but several of them did not get paid on time for their work. The essence of the dispute is which party bears responsibility for the non-payment of the labor subcontractors.

         Currently before the Court is a counterclaim by Rosenthal against RWS. Rosenthal claims that RWS falsely told the labor subcontractors that MEP had been paid fully for the subcontractors' work, thus leading the labor subcontractors to blame MEP rather than RWS for their lack of payment. Based on these facts, Rosenthal asserts claims for: (1) statutory business conspiracy, (2) common law business conspiracy, (3) defamation, (4) tortuous interference with a business expectancy, and (5) punitive damages. RWS has filed a motion to dismiss each of these counterclaims.

         Although the parties requested a hearing on this matter, the Court concludes that the parties' positions have been adequately conveyed in their briefings. In accordance with Local Rule 11(c) and Federal Rule of Civil Procedure 78(b), the Court will decide RWS's motion without a hearing. RWS's motion to dismiss Rosenthal's counterclaim will be granted in part and denied in part. The Court will grant RWS's motion as to the conspiracy and tortious interference claims. Rosenthal's conspiracy claims fail because a conspiracy cannot exist between agents working within a single corporate entity. Rosenthal's tortious interference claim will be dismissed because Rosenthal does not have any individual business expectancy with regard to any of the subcontractors at issue in this case. Punitive damages in the counterclaim are a remedy rather than a separate claim, and need not be addressed at the motion-to-dismiss stage. Finally, Rosenthal's defamation claim is adequately pled because he has alleged a sufficient nexus between himself and MEP such that he can bring suit for allegedly defamatory statements about MEP's conduct.

         I. Facts as Alleged

         RWS entered into a subcontract purchase order agreement (“the Contract”) with MEP for plumbing work on the Kroger project in Midlothian, Virginia. (Dkt. 31 ¶¶ 1, 2). Richard Rosenthal is the principal shareholder and president of MEP. (Id. ¶ 3). The Contract contained provisions allowing for change orders to amend the scope of the work and compensation. (Id. ¶ 4). MEP did not have sufficient labor to fulfill the work expectations of RWS, so it subcontracted for additional labor. (Id. ¶¶ 6, 7). RWS authorized change orders allowing MEP to employ this additional subcontract labor in order to meet RWS's work expectations. (Id. ¶ 7).

         Although RWS assured MEP that it would continue to authorize and pay change orders to enable MEP to employ additional labor, RWS ceased payment for subcontract labor on April 21, 2016. (Id. ¶¶ 10-12). From that date until June 2016, MEP continued to employ subcontract labor and requested that RWS authorize and pay for such labor via change orders. (Id. ¶¶ 13-14). In late June 2016, MEP could no longer afford to employ the subcontract labor for RWS at the Kroger project, and moved personnel to other projects. (Id. ¶ 18). As a result, RWS informed MEP that it would hire a replacement plumbing contractor to complete the project if MEP did not resume work pursuant to RWS's expectations. (Id. ¶ 19). MEP resumed work, but RWS nonetheless hired a replacement plumbing contractor. (Id. ¶¶ 20-21). The presence of the replacement plumbing contractor forced MEP to stop work on the Kroger project. (Id. ¶ 22). MEP continued to request compensation for the subcontract labor it employed from April through June 2016, but RWS refused to provide payment. (Id. ¶¶ 23-24).

         After this souring of relations, Rosenthal alleges that RWS began to speak ill of MEP to MEP's subcontractors. (Id. ¶ 25). This “campaign to defame” is evidenced by several communications. (Id.). First, one of MEP's subcontractors, Kenneth Douglas of Tradesmen International, sent an email to RWS employee Kevin Jenny on May 13, 2016, stating:

I am going to let my credit manager know of what is going on today and let you know the next step she wants to take. I am learning that this is not the first time that this has happened with Rick [Rosenthal] and also not the first company he has owned where the same pattern has been repeated.

(Id. ¶ 26). On May 17, he sent a follow up email:

Kevin, We were supposed to meet Rick this morning to get payment and he is no where to be found. We have reached out to him and cannot get in touch with him. This needs to be resolved ASAP. What can you do to help before we take this next step.

(Id. ¶ 27).

         The second communication occurred on July 11, 2016, when Richard Buleza of Construction Labor Contractors (“CLC”) sent an email to Rosenthal that read as follows:

Good Morning Rick, Please give my office a call today in order to let me know when I can meet you to pick a ck for the past due amount. We have been told by Jamie Bates that you have already been paid for our invoices. You are now $6, 410.25 over 61 days and $12, 309 past 31 days. This amount is way over your credit limit of $5, 000 and we really [need] to get this paid timely . . .

(Id. ¶ 28 (emphasis in counterclaim)). Jamie Bates is an employee of RWS. (Id. ¶29).

         Rosenthal believed the allegations in the CLC letter regarding the fact that RWS fully paid MEP were the product of false representations by RWS to CLC. (Id. ¶¶ 30-31). Thus, Rosenthal sent a certified letter to RWS on July 13th which stated:

It has been brought to my attention that RW Smith Company is falsely making accusations that payment has been made in full to M.E.P. Mechanical, Inc. Under no circumstances is that statement true. I have taken serious notice of these completely false and scandalous accusations that render a distorted and fictional travesty of facts about M.E.P. Mechanical with the malicious purpose to defame and disgrace M.E.P. Mechanical, Inc. These false accusations are to stop immediately and any further allegations will no longer be tolerated. If RW Smith continues to make these remarks further legal action will be taken.

(Id. ¶ 32). Kevin Jenny responded on behalf of RWS:

Please note that we have not stated that MEP Mechanical has been paid in full. What we have said is that MEP has been paid for the periods in which the labor from the labor vendors were utilized. Therfore [sic] the payment of the labor invoices ...

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