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Lang Pharma Nutrition, Inc. v. Aenova Holding Gmbh

United States District Court, D. Rhode Island

August 3, 2017

LANG PHARMA NUTRITION, INC., Plaintiff,
v.
AENOVA HOLDING GMBH, Defendant.

          MEMORANDUM AND ORDER

          WILLIAM E. SMITH, CHIEF JUDGE.

         Lang Pharma Nutrition, Inc. (“Plaintiff”), a distributor of private label dietary supplement products to national retailers, is suing Aenova Holding GmbH (“Defendant”), a German manufacturer and supplier of dietary supplements, for misrepresentation. Before the Court are (1) Defendant's Motion to Dismiss the Complaint for failure to state a claim upon which relief may be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure and failure to join Swiss Caps, Inc. (Defendant's subsidiary) as a required party pursuant to Rules 12(b)(7) and 19 (ECF No. 12); (2) Plaintiff's Motion to Strike a declaration filed by Defendant in support of its Motion to Dismiss (ECF No. 18); and (3) Swiss Caps, Inc.'s Motion to Intervene (ECF No. 24). For the reasons set forth below, the Motion to Dismiss is DENIED, the Motion to Strike is DENIED AS MOOT, and the Motion to Intervene is DENIED WITHOUT PREJUDICE.

         I. Background

         The Court summarizes the communications between the parties and the events leading up to the litigation as alleged by Plaintiff, with reasonable inferences drawn in Plaintiff's favor.[1] In November 2013, Defendant sent marketing materials to Plaintiff promoting its softgel technology, EnteriGelTM. After Plaintiff inquired about Defendant's capability to manufacture EnteriGelTM softgels using Plaintiff's fish oil, Defendant sent samples to Plaintiff and assured Plaintiff that it was ready to manufacture EnteriGelTM softgels on a commercial scale. Based on information Defendant provided to Plaintiff, Plaintiff secured a deal with Sam's Club to “launch a private label fish oil supplement in EnteriGelTM softgels” in January 2015.[2] Despite some manufacturing issues at Defendant's Miami facility (operated by its subsidiary Swiss Caps), Defendant assured Plaintiff that it would be able to manufacture the millions of softgel capsules that Plaintiff had promised to Sam's Club. Continued manufacturing problems created a delay for the launch - the product was not actually launched at Sam's Club until July 2015 - and then caused Defendant to completely cease manufacturing the EnteriGelTM softgels in August 2015. Plaintiff offered refunds to many customers who experienced unpleasant side effects from the EnteriGelTM softgels as well as replacement supplements manufactured by a different company. Eventually, Sam's Club pulled Plaintiff's product from its shelves and returned all of its stock to Plaintiff.

         II. Discussion

         A. Rule 12(b)(6)

         “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'”[3] “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[4] In addition to reviewing the allegations stated in the complaint, the Court may consider documents that are discussed in the complaint and included with the complaint as exhibits.[5] When a false or fraudulent representation is alleged, the complaint must “specify the who, what, where, and when of the allegedly false or fraudulent representation.”[6]

         According to Defendant, the Complaint fails to state a claim upon which relief may be granted because (1) it does not set forth the prima facie elements of a claim for misrepresentation; and (2) the economic loss doctrine bars Plaintiff's ability to recover under tort law because the dispute is about the commercial sale of goods between two American companies. Instead, Defendant contends, this case should be governed by contract law principles and the Uniform Commercial Code.

         1. Misrepresentation Claim

         Defendant argues that Plaintiff fails to properly allege any of the elements for either negligent or intentional misrepresentation. Specifically, Defendant argues that the allegations in the Complaint cannot amount to misrepresentations of fact because Defendant's - or as Defendant claims, Swiss Caps' - representatives merely provided estimates and made promises about what would happen in the future. Defendant also argues that Plaintiff has failed to allege any justifiable reliance on Defendant's statements.

         Plaintiff responds that it has specifically alleged all of the required elements for its claim of misrepresentation. Plaintiff argues that the statements at issue include Defendant's assertion that it had the present ability to provide Plaintiff with a commercial volume of EnteriGelTM capsules. Plaintiff also argues that whether its reliance on any of Defendant's statements was reasonable or justifiable is an issue of fact, not law.

         The tort of negligent misrepresentation has four elements:

(1) a misrepresentation of a material fact; (2) the representor must either know of the misrepresentation, must make the misrepresentation without knowledge as to its truth or falsity or must make the representation under circumstances in which he ought to have known of its falsity; (3) the representor must intend the representation to induce another to act on it; and (4) injury must result to the party acting in justifiable reliance on the misrepresentation.[7]

“[T]he general rule is that mere unfulfilled promises to do a particular thing in the future do not constitute [a misrepresentation] in and of themselves.”[8] “Future events or promises are not considered factual.”[9] The Court is not clear whether Plaintiff intends to pursue negligent misrepresentation, intentional misrepresentation, or both. Regardless, the elements are the same, except that to prove an intentional misrepresentation, the second element is limited to a knowing misrepresentation of fact.[10]

         The Court notes at the outset that Plaintiff has set forth a detailed array of allegations in its Complaint about its communications with Defendant, including dates, the individuals involved, and the content. Some of the allegations reflect statements that could be considered Defendant's estimates or promises to meet an objective in the future, but the Complaint also reflects allegations of present production capabilities in the written materials it sent to Plaintiff in November 2013.[11]In addition, Plaintiff alleges that Defendant represented “it was ready to manufacture commercial production runs of EnteriGelTM softgels, ” and that when Plaintiff visited Defendant's Miami facility in February 2014, Defendant represented that it could produce 400-500 million capsules per year by May 2014.[12] Plaintiff alleges that these statements were false when Defendant made them because Defendant had not yet produced the EnteriGelTM capsules commercially.[13] Plaintiff also alleges that Defendants made the statements with the intent to induce Plaintiff into a commercial business transaction with it, that Plaintiff relied on Defendant's statements by entering into a business relationship with Sam's Club whereby Plaintiff was to be the exclusive seller of these capsules, and that Plaintiff was harmed by Defendant's false statements.[14]

         The Court agrees with Plaintiff that whether its reliance on Defendant's representations was justifiable is an issue of fact that is not appropriate to consider in the current posture of this case. At this pleading stage, Plaintiff must simply provide a plausible allegation that it relied on the statements that Defendant made. The merits of its allegations will be tested after the parties have engaged in discovery.

         The Court concludes that Plaintiff has plausibly pleaded sufficient facts from which a trier of fact could draw the reasonable inference that Defendant is liable for misrepresentation, either intentional or negligent.[15] Plaintiff also “specif[ied] the who, what, where, and when of the allegedly false or fraudulent representation, ” as required by Rule 9.[16] The Court turns next to Defendant's argument that the business relationship between the parties precludes Plaintiff from any potential to prevail on its misrepresentation claim.

         2. Economic Loss Doctrine

         Defendant argues that the economic loss doctrine precludes Plaintiff from its attempt to turn its contract dispute into a tort action when it seeks purely economic damages, especially when Plaintiff attached a signed Exclusive Sales Agreement to the Complaint. Plaintiff counters that this doctrine is inapplicable in this case because the parties did not finalize or sign a supply agreement. Plaintiff also argues that its Complaint is based on “technology and process shortcomings” and is therefore not a contract dispute.[17]

         “Economic loss is defined as ‘costs associated with repair and-or replacement of a defective product, or loss of profits consequent thereto.'”[18]

The economic loss doctrine preserves the line between tort and contract, providing that: If tort claims are based on duties that are imposed by contract, then under the economic-loss rule, contract law provides the remedies for economic losses. The economic-loss doctrine forbids a party from suing or recovering in tort for economic or pecuniary losses that arise only from breach of contract or are associated with the contract relationship. In other words, tort damages are generally not recoverable unless the plaintiff suffers an injury that is independent and separate from the economic losses recoverable under a breach-of-contract claim.[19]

         This Court acknowledged many times that the Rhode Island Supreme Court has not addressed whether the economic loss doctrine applies to claims for misrepresentation, and has previously considered this ...


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