Opinion
Civil No. CCB-04-152.
July 29, 2004
MEMORANDUM
Now pending before the court is a motion for judgment on the pleadings filed by defendants Stephen Chadwick, Secant Medical, LLC, and Prodesco, Inc. The issues in this motion have been fully briefed and no hearing is necessary. See Local Rule 105.6. For the reasons stated below, the defendants' motion will be granted and the complaint will be dismissed as to these defendants.
BACKGROUND
In June 2002, plaintiff Micrins Surgical, Inc. ("Micrins") entered into a contract with defendant Neuroregen, LLC to be the exclusive distributor in the United States for Neuroregen's product known as Neurotube, a bioabsorbable nerve conduit used in surgical procedures. Defendant Secant Medical, LLC manufactures Neurotube for Neuroregen; Secant is a wholly-owned subsidiary of defendant Prodesco, Inc. Defendant Stephen Chadwick ("Chadwick") is the President and CEO of Secant Medical and Prodesco.
On June 20, 2003, Neuroregen sent written notice to Micrins that it was terminating the distributorship agreement effective June 13, 2003, citing Micrins's failure to meet minimum purchase requirements set forth in the contract. (Second Am. Compl. at Ex. B.) Micrins alleges that Neuroregen had no right to terminate the agreement when it did (id. at ¶ 14), and that Neuroregen itself breached the agreement in several respects (id. at ¶ 18.) Micrins claims that it met the minimum purchase requirements and all other terms of the contract. (Id. at ¶¶ 8.2, 9.)
Micrins filed this lawsuit in the United States District Court for the District of Northern Illinois in August 2003, alleging breach of contract against Neuroregen (count I), wrongful interference with an existing contractual relationship against Chadwick, Secant Medical, and Prodesco (count II), and libel against Chadwick (count III). Judge Matthew Kennelly granted the defendants' motion to transfer the case to this district pursuant to 28 U.S.C. § 1404(a). Defendants Chadwick, Secant Medical, and Prodesco have filed a motion for judgment on the pleadings on counts II and III, arguing that Micrins has failed to state a claim.
The original complaint also named as a defendant John E. Barham, the managing member of Neuroregen, but did not allege any causes of action against him. This court granted Barham's motion for judgment on the pleadings on May 4, 2004.
ANALYSIS
A defendant may present the defense of failure to state a claim upon which relief may be granted after the pleadings are closed by a motion for judgment on the pleadings. See Fed.R.Civ.P. 12(c), (h)(2). Such a motion is subject to the same standards as a Rule 12(b)(6) motion to dismiss. See Burbach Broad. Co. of Del. v. Elkins Radio Corp., 278 F.3d 401, 405-06 (4th Cir. 2002); Fare Deals, Ltd. v. Glorioso, 217 F. Supp. 2d 670, 671 (D. Md. 2002)."The purpose of a Rule 12(b)(6) motion is to test the sufficiency of a complaint; importantly, a Rule 12(b)(6) motion does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999) (internal quotation marks and alterations omitted). When ruling on such a motion, the court must "accept the well-pled allegations of the complaint as true," and "construe the facts and reasonable inferences derived therefrom in the light most favorable to the plaintiff." Ibarra v. United States, 120 F.3d 472, 474 (4th Cir. 1997). Consequently, a motion to dismiss under Rule 12(b)(6) may be granted only when "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957);see also Edwards, 178 F.3d at 244. In addition, because the court is testing the legal sufficiency of the claims, the court is not bound by the plaintiff's legal conclusions. See, e.g., Young v. City of Mount Ranier, 238 F.3d 567, 577 (4th Cir. 2001) (noting that the "presence . . . of a few conclusory legal terms does not insulate a complaint from dismissal under Rule 12(b)(6)" when the facts alleged do not support the legal conclusions); Labram v. Havel, 43 F.3d 918, 921 (4th Cir. 1995) (affirming Rule 12(b)(6) dismissal with prejudice because the plaintiff's alleged facts failed to support her conclusion that the defendant owed her a fiduciary duty at common law).
I. Choice of Law
As a general rule, the forum state's choice of law rules determine what substantive law to apply to state claims in federal court. See Day Zimmermann, Inc. v. Challoner, 423 U.S. 3, 4 (1975) (per curiam). A transferee court receiving a case under 28 U.S.C. § 1404(a) must apply the laws of the state of the transferor court, however, including that state's choice of law rules. Myelle v. Am. Cyanamid Co., 57 F.3d 411, 413 (4th Cir. 1995). To determine choice of law in tort actions, Illinois follows the "most significant relationship" or "most significant contacts" test, which provides that the law of the place of injury governs unless another state has a more significant relationship with the occurrence and the parties.See Wreglesworth ex rel. Wreglesworth v. Arctco, Inc., 738 N.E.2d 964, 971 (Ill.App.Ct. 2000); Rest. (Second) of Conflict of Laws § 145 (1971). The tort claims alleged under counts II and III thus are governed by Illinois substantive law, because any injury to Micrins would have occurred in Illinois, where it is incorporated and has its principal place of business. Cf. Cook v. Winfrey, 975 F. Supp. 1045, 1049-50 (N.D. Ill. 1997), rev'd in part on other grounds 141 F.3d 322, 329 (7th Cir. 1998); St. Charles Riverfront Station, Inc. v. Empress Casino Joliet Corp., 5 F. Supp. 2d 592, 593-94 (N.D. Ill. 1998).
II. Wrongful Interference With an Existing Contract
To state a claim for wrongful interference with an existing contract under Illinois law, a plaintiff must allege: "(1) the existence of a valid and enforceable contract; (2) defendant's awareness of the contractual obligation; (3) defendant's intentional and unjustified inducement of a breach; (4) subsequent breach caused by defendant's unlawful conduct; and (5) damages." Clarage v. Kuzma, 795 N.E.2d 348, 357 (Ill.App.Ct. 2003); see also RKI, Inc. v. Grimes, 200 F. Supp. 2d 916, 924 (N.D. Ill. 2002). Micrins's complaint states facts from which the first two and the last elements reasonably can be inferred, but there are no allegations to suggest that the three named defendants intentionally and unjustifiably induced any breach by Neuroregen, or that any breach by Neuroregen was caused by their conduct. Micrins simply alleges in conclusory fashion that Chadwick, Secant Medical, and Prodesco wrongfully induced and persuaded Neuroregen to terminate its contract with Micrins. (Second Am. Compl. at ¶ 20.) Micrins then states that it knows of no reason why Chadwick, Secant Medical, and Prodesco would have engaged in these wrongful efforts other than the possibility of some business advantage if the contract was terminated. (Id. at ¶ 21.) The complaint does not cite any specific actions by any of these three defendants that would support the claim.
The email message allegedly sent by Chadwick to a member of Neuroregen, which was critical of Micrins, was sent on July 16, 2003, after the contract had been terminated. (Second Am. Compl. at ¶ 28.)
These allegations do not satisfy the minimum requirements of notice pleading under the federal rules: to "provide a statement sufficient to put the opposing party on fair notice of the claim and the grounds supporting it." Ostrzenski v. Seigel, 177 F.3d 245, 251 (4th Cir. 1999). Although the court must "accept the well-pled allegations of the complaint as true" Ibarra, 120 F.3d at 474, the court need not accept "legal conclusions couched as factual allegations, or conclusory factual allegations devoid of any reference to actual events." Baltimore-Clark v. Kinko's Inc., 270 F. Supp. 2d 695, 698 (D. Md. 2003) (citing Papasan v. Allain, 478 U.S. 265, 286 (1986) and United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979)). Micrins's bare allegations, devoid of any reference to actual events, fail to state a claim upon which relief can be granted. Accordingly, count II must be dismissed.
The plaintiff previously filed a Motion to Amend Count II of the Second Amended Complaint, which the defendants opposed. The motion was terminated from the docket because it was filed improperly. The plaintiff never filed either a corrected motion or a reply to the defendant's opposition. To the extent that the plaintiff is still pressing its motion to amend, that motion is denied.
III. Libel
The claim for libel is based on the following five statements in an email message sent by Chadwick to Dr. Arnold L. Dellon, M.D., an inventor of Neurotube and a member of Neuroregen, on July 16, 2003:
1. ". . . the lousy performance and questionable integrity of Micrins management;"
2. "It is obvious that Micrins was not only slow in paying but probably would not have paid at all until we discussed contract termination;"
3. "If you were told that by Micrins you should consider the source and its veracity;"
4. "Bottom line is that the sooner we disengage from Micrins the more likely it is that your elegant little tube won't disappear into the museum of failed devices. I can guaranty you that it won't survive the pullout of Secant Medical and that is a distinct possibility unless we start getting paid back for the approximately $1 million that we can document that Prodesco has sunk into this project;"
5. "By the way, the burn rate for shareholders continues as we develop and validate the 4mm and 8mm tubes. You are making it very difficult for us to proceed by ignoring the facts and continuing to talk with and about Micrins. Please get off it. I have enough trouble preventing this whole thing being written off as a `non-performing' investment."
Neither side has produced the full text of this email message, or provided any additional context for the above statements, except that Micrins alleges that the third statement was made "[a]fter referring to the question of sufficient product not being available." (Second Am. Compl. at ¶ 28C.)
(Second Am. Compl. at ¶ 28.) Micrins alleges that these statements are libelous and were made "without foundation" and with the intent to damage Micrins. (Id. at ¶¶ 28-29.)
To state a claim for libel under Illinois law, a plaintiff must allege that: (1) the defendant made a false statement concerning the plaintiff; (2) there was an unprivileged publication of the defamatory statement by the defendant to a third party; and (3) this caused damage to the plaintiff. Republic Tobacco, L.P. v. N. Atl. Trading Co., Inc., 254 F. Supp. 2d 985, 998 (N.D. Ill. 2002); Myers v. Levy, 808 N.E.2d 1139, 1147 (Ill.App.Ct. 2004). A plaintiff may bring a claim for libel per se, in which damages are presumed, if the statement falls within certain limited categories. See Myers, 808 N.E.2d at 1147; Van Horne v. Muller, 705 N.E.2d 898, 903 (Ill. 1998). Illinois law recognizes five categories of statements that are per se defamatory, three of which could apply to a corporation: "(1) statements that impute the commission of a crime, (2) statements that impute an inability to perform or want of integrity in discharge of duties, and (3) statements that impute a lack of ability in the corporation's trade." Fedders Corp. v. Elite Classics, 279 F. Supp. 2d 965, 969 (S.D. Ill. 2003) (citing Bryson v. News Am. Publ'ns, Inc., 672 N.E.2d 1207, 1214-15 (Ill. 1996)). All other claims for libel are per quod, requiring the plaintiff to allege "both extrinsic facts to establish that the statement is defamatory and special damages with particularity." Myers, 808 N.E.2d at 1147. Micrins does not allege any special damages or facts that would support special damages caused by the alleged libel, so its claim must be evaluated as per se rather than per quod.
The only damages that Micrins pleads with any particularity are allegations of lost profits of $345,509, due to the termination of its contract with Neuroregen. (Second Am. Compl. at ¶ 19.) The termination occurred before the alleged libel, however, and therefore cannot be causally linked to it. Under the libel count, Micrins requests additional damages of $250,000. (Id. at ¶ 29.)
To support a claim for libel, a defendant's statement cannot be one of "pure opinion," but instead must contain an "objectively verifiable assertion." Wynne v. Loyola Univ. of Chicago, 741 N.E.2d 669, 676 (Ill.App.Ct. 2000). The court determines as a matter of law if a statement of opinion is actionable, based on factors such as (1) "whether the language of the statement has a precise and readily understood meaning;" (2) "whether the general tenor of the context in which the statement appears negates the impression that the statement has factual content;" (3) "whether the statement is susceptible of being objectively verified as true or false." Hopewell v. Vitullo, 701 N.E.2d 99, 103 (Ill.App.Ct. 1998); see also Drury v. Sanofi-Synthelabo, Inc., 292 F. Supp. 2d 1068, 1070 (N.D. Ill. 2003). "[T]he question of whether a statement of opinion is actionable as defamation is one of degree; the vaguer and more generalized the opinion, the more likely the opinion is nonactionable as a matter of law." Wynne, 741 N.E.2d at 676.
The first two and final two statements by Chadwick cited above, to the extent that they state anything about Micrins, are nonactionable opinion. At best, the final two statements can be read as expressing Chadwick's advice to Dellon that Neuroregen should end its business relationship with Micrins. The terms contained in the first two statements — "lousy," "questionable," "slow," and "probably" — are too loose, imprecise, and inherently subjective to have a readily understood meaning or to be objectively verifiable. Cf. Skolnick v. Corr. Med. Servs., Inc., 132 F. Supp. 2d 1116, 1128-29 (N.D. Ill. 2001) (finding that statement that reporter used "questionable" tactics and provided "inaccurate" facts is nonactionable opinion);Naeemullah v. Citicorp Servs., Inc., 78 F. Supp. 2d 783, 793 (N.D. Ill. 1999) (same for statements that employee has "poor personal skills" and "run-of-the-mill professional abilities");Sullivan v. Conway, 959 F. Supp. 877, 880-81 (N.D. Ill. 1997) (same for statement that employee was a "very poor lawyer");Hopewell, 701 N.E.2d at 104 (same for statement that employee was "fired because of incompetence"). Moreover, the general tenor of Chadwick's email — based on the excerpts provided to the court — negates any impression that Chadwick is making objective factual assertions against Micrins. Instead this message appears to reflect Chadwick's subjective evaluation of Micrins's performance under the distributorship agreement.
A general statement that the plaintiff is "a liar" also is nonactionable opinion, unless the statement refers to specific facts or past statements by the plaintiff. See Boese v. Paramount Pictures Corp., 952 F. Supp. 550, 557 (N.D. Ill. 1996); Piersall v. SportsVision of Chicago, 595 N.E.2d 103, 107-08 (Ill.App.Ct. 1992). The third alleged statement by Chadwick is actionable as libel only to the extent that it implies that Micrins lied in a specific context about "the question of sufficient product not being available." (Second Am. Compl. at ¶ 28C.) The implication that Micrins generally lacks veracity is not specific enough to be actionable.
The tenor of the email message as an evaluation of Micrins highlights another problem with stating a per se libel claim on these facts. Under Illinois law, a statement will not be considered defamatory per se if it is "reasonably capable of an innocent construction." Salamone v. Hollinger Int'l, Inc., 807 N.E. 2d 1086, 1090 (Ill.App.Ct. 2004). Courts have held that statements evaluating an employee's performance fall into this category, because they can be interpreted as limited to the context of a specific employment relationship rather than imputing a more general inability to perform, lack of integrity, or lack of ability — which would be per se defamatory. See Anderson v. Vanden Dorpel, 667 N.E.2d 1296, 1303 (Ill. 1996) (statements that employee "did not follow up on assignments" and "could not get along with co-workers");Valentine v. N. Am. Co. for Life Health Ins., 328 N.E.2d 265, 267 (Ill. 1974) (statement that individual "was a lousy agent");Green v. Trinity Int'l Univ., 801 N.E.2d 1208, 1220 (Ill.App.Ct. 2003) (statements about university professor describing student complaints and lack of satisfactory response from professor). The same reasoning would suggest that Chadwick's statements evaluating Micrins's performance in the specific context of the distributorship agreement are capable of an innocent construction, and thus are not per se libelous.
In any event, all of the statements made by Chadwick to Dellon are conditionally privileged under Illinois law, and Micrins has not pled any facts suggesting that Chadwick forfeited this privilege. "The three types of situations in which a conditional privilege exists are (1) situations that involve some interest of the person who publishes the defamatory matter; (2) situations that involve some interest of the person to whom the matter is published or of some third person; and (3) situations that involve a recognized interest of the public." Myers, 808 N.E.2d at 1147. The court determines as a matter of law whether a particular communication is conditionally privileged. Id. at 1147-48; see also Haywood v. Lucent Techs., Inc., 169 F. Supp. 2d 890, 916 (N.D. Ill. 2001). Chadwick's alleged defamatory statements concerned the business relationship between the parties for the production of Neurotube, with Dellon representing the product developer, Neuroregen, and Chadwick representing Prodesco and its subsidiary Secant Medical, the product manufacturer. Because both participants had a legitimate business interest in the information conveyed — regarding the sale and distribution of the product — the statements are conditionally privileged under Illinois law. Cf. Haywood, 169 F. Supp. 2d at 916-17.
If the alleged defamatory statements by the defendant are conditionally privileged, then the plaintiff bears the burden of demonstrating that the defendant forfeited the privilege by abusing it. Id. at 917; Myers, 808 N.E.2d at 1148. "To prove an abuse of the privilege, the plaintiff must show that there was a reckless disregard of the plaintiff's rights and an intent to injure." Clarage, 795 N.E.2d at 358; see also Myers, 808 N.E.2d at 1148. Although the conditional privilege is an affirmative defense, see Edelman, Combs Latturner v. Hinshaw Culbertson, 788 N.E.2d 740, 748 (Ill.App.Ct. 2003), the issue nonetheless may be raised on a motion to dismiss "when the face of the complaint clearly reveals the existence of a meritorious affirmative defense." E. Shore Markets, Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 185 (4th Cir. 2000). In this case, the complaint clearly reveals the existence of a meritorious affirmative defense, and Micrins simply has failed to plead any facts that would overcome this defense. Accordingly, the libel claim must be dismissed. Cf. MJ Partners Rest. Ltd. P'ship v. Zadikoff, 126 F. Supp. 2d 1130, 1136 (N.D. Ill. 1999) (denying motion to dismiss defamation claim, where plaintiff sufficiently pled abuse of conditional privilege); Patlovich v. Rudd, 949 F. Supp. 585, 594 (N.D. Ill. 1996) (same); Chisholm v. Foothill Capital Corp., 940 F. Supp. 1273, 1285 (N.D. Ill. 1996) (denying motion to dismiss defamation claim, despite plaintiff's failure to negate a defense of conditional privilege, because the complaint did not affirmatively show the statement is privileged).
A separate order follows.
ORDER
For the reasons stated in the accompanying Memorandum, it is hereby Ordered that:
1. defendants Stephen Chadwick, Secant Medical, LLC, and Prodesco, Inc.'s motion for judgment on the pleadings (docket no. 36) is GRANTED;
2. counts II and III are DISMISSED; and
3. copies of this Order and the accompanying Memorandum shall be sent to counsel of record.