General Steel Domestic Sales, LLC v. Chumley et al

Filing 67

ORDER granting in part and denying in part 24 Plaintiff's Motion Under Federal Rule of Civil Procedure 12 to Dismiss, to Strike, and for a More Definite Statement. Armstrong's first counterclaim for commercial disparagement, second counte rclaim for deceptive trade practices, and fourth counterclaim for civil conspiracy are dismissed without prejudice. Armstrong's request for punitive damages in its prayer for relief, see Docket No. 23 at 27, is stricken. By Judge Philip A. Brimmer on 6/10/11.(mnf, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 10-cv-01398-PAB-KLM
GENERAL STEEL DOMESTIC SALES, LLC,
d/b/a General Steel Corporation, a Colorado limited liability company,
Plaintiff,
v.
ETHAN DANIEL CHUMLEY, individually, and
ATLANTIC BUILDING SYSTEMS, LLC, a Delaware corporation,
doing business as Armstrong Steel Corporation,
Defendants.

ORDER

This matter is before the Court on plaintiff’s Motion Under Federal Rule of Civil
Procedure 12 to Dismiss, to Strike, and for a More Definite Statement [Docket No. 24].
Plaintiff filed the motion in response to the Answer to Amended Complaint and
Counterclaims of Defendants [Docket No. 23]. The motion is fully briefed and ripe for
disposition.
I. BACKGROUND1
For several years, defendant Ethan Daniel Chumley worked for General Steel
Domestic Sales, LLC, doing business as General Steel Corporation (“General Steel”).
Upon leaving, Chumley worked for Olympia Steel, a competitor of General Steel. He
then formed Atlantic Building Systems, LLC, doing business as Armstrong Steel

1

The following facts are drawn from the counterclaims.

Corporation (“Armstrong”), which sells pre-engineered steel metal buildings throughout
the world in competition with General Steel and Olympia. General Steel initiated this
trademark and unfair competition action on June 16, 2010.
Armstrong has filed counterclaims, alleging that General Steel has made
disparaging comments about Armstrong to customers and potential customers of
Armstrong, including that “Armstrong does not have proper facilities; that it consists of
one or two individuals; that those individuals were fired from General Steel for
committing fraud against customers; that Armstrong would take the customers [sic]
money and not deliver the building ordered; and that Armstrong Steel would soon be
out of business.” Docket No. 23 at 19-20, ¶ 18. Armstrong further alleges that, during
a May 4, 2010 meeting, General Steel wrongfully received confidential information
about Armstrong from Jon Abbotts, an Armstrong employee, and used that information
to aid in its efforts to disparage Armstrong. Armstrong contends that the disparagement
has resulted in lost profits and goodwill.
II. STANDARD OF REVIEW
“The court’s function on a Rule 12(b)(6) motion is not to weigh potential evidence
that the parties might present at trial, but to assess whether the plaintiff’s Complaint
alone is legally sufficient to state a claim for which relief may be granted.” Dubbs v.
Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (citations omitted). In doing so,
the Court “must accept all the well-pleaded allegations of the complaint as true and
must construe them in the light most favorable to the plaintiff.” Alvarado v. KOB-TV,
L.L.C., 493 F.3d 1210, 1215 (10th Cir. 2007) (quotation marks and citation omitted). At

2

the same time, however, a court need not accept conclusory allegations. Moffett v.
Halliburton Energy Servs., Inc., 291 F.3d 1227, 1232 (10th Cir. 2002).
Generally, “[s]pecific facts are not necessary; the statement need only ‘give the
defendant fair notice of what the claim is and the grounds upon which it rests.’”
Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007)) (omission marks, internal quotation marks, and
citation omitted). The “plausibility” standard requires that relief must plausibly follow
from the facts alleged, not that the facts themselves be plausible. Bryson v. Gonzales,
534 F.3d 1282, 1286 (10th Cir. 2008).
However, “where the well-pleaded facts do not permit the court to infer more
than the mere possibility of misconduct, the complaint has alleged – but it has not
shown – that the pleader is entitled to relief.” Ashcroft v. Iqbal, --- U.S. ----, 129 S. Ct.
1937, 1950 (2009) (internal quotation marks and alteration marks omitted). Thus, even
though modern rules of pleading are somewhat forgiving, “a complaint still must contain
either direct or inferential allegations respecting all the material elements necessary to
sustain a recovery under some viable legal theory.” Bryson, 534 F.3d at 1286
(quotation marks and citation omitted).
The motion also invokes Federal Rule of Civil Procedure 9. In particular, Rule
9(b) requires that fraud-based claims be pled with particularity. See Fed. R. Civ. P.
9(b), providing in pertinent part that, “[i]n alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or mistake.” See id.
Furthermore, General Steel also relies upon Rule 9(g), which requires that, “[i]f an item

3

of special damage is claimed, it must be specifically stated.” Fed. R. Civ. P. 9(g).
III. DISCUSSION
Armstrong asserts six counterclaims arising out of Colorado law against General
Steel: (1) commercial disparagement, (2) deceptive trade practices, (3) tortious
interference with prospective business advantage, (4) civil conspiracy, (5) unfair
competition, and (6) unjust enrichment. Armstrong requests, inter alia, an award of
punitive damages against General Steel. In its motion, General Steel seeks dismissal
of defendants’ first, third, and fourth counterclaims and for the Court to strike
defendants’ second counterclaim and request for punitive damages.
A. Commercial Disparagement
Armstrong does not dispute General Steel’s contention that, pursuant to
Colorado law, a “commercial disparagement” claim comprises the following elements:
“(1) a false statement; (2) published to a third party; (3) derogatory to the plaintiff's
business in general, to the title to his property, or its quality; (4) through which the
defendant intended to cause harm to the plaintiff's pecuniary interest, or either
recognized or should have recognized that it was likely to do so; (5) with malice; (6)
thus, causing special damages.” Teilhaber Manufacturing Co. v. Unarco Materials
Storage, 791 P.2d 1164, 1166 (Colo. App. 1989) (adopting Restatement (Second) of
Torts §§ 623(A) and 624 (1976)). General Steel requests dismissal of this counterclaim
on the ground that Armstrong failed to plead special damages with adequate specificity.
Under Colorado law, “[i]f a plaintiff cannot show special damages, no cause of
action is established.” Teilhaber, 791 P.2d at 1167. “To make the required showing, a

4

plaintiff usually must identify those persons who refuse to purchase his product
because of the disparagement.” Id. However, “[i]f it is not a practical possibility to show
specific losses, damages may then be proved by evidence similar to that used to prove
lost profits resulting from a breach of contract.” id. at 1168. Furthermore, federal
procedural law requires that special damages be pled with specificity. See Fed. R. Civ.
P. 9(g); Weyerhaeuser Co. v. Brantley, 510 F.3d 1256, 1266 (10th Cir. 2007) (“Special
damages depend on particular circumstances of the case; general damages, on the
other hand, are the ordinary result of the conduct alleged.”) (5A Charles Alan Wright &
Arthur R. Miller, Federal Practice and Procedure § 1310 (3d ed.2005)).
In regard to its damages, Armstrong alleges that “one or more customers . . .
breach[ed] their agreement with Armstrong or [chose to] forego business associations
with Armstrong because of General Steel’s disparaging comments,” thus “caus[ing]
Armstrong to lose significant business and be damaged . . . .” Docket No. 23 at
21, ¶¶ 24-25. Furthermore, Armstrong avers that, “[b]y disparaging Armstrong with
false statements concerning its business[,] General Steel has made sales it would not
otherwise have made and caused harm to Armstrong’s reputation.” Docket No. 23 at
21, ¶ 27; see Docket No. 23 at 22, ¶ 33 (“Upon information and belief[,] Armstrong has
lost sales and the attendant profits as a direct and proximate result of General Steel’s
conduct as describe[d] above.”).
Armstrong has not identified customers lost on account of the business
disparagement. Nor has it specifically pled the lost profits it has suffered. Rather, it
merely alleges in a conclusory fashion that it has suffered that category of damages.

5

The Court finds that Armstrong has insufficiently pled special damages as a matter of
both Colorado substantive law and Rule 9(g). See 5A Charles Alan Wright & Arthur R.
Miller, Federal Practice & Procedure § 1310 (3d ed. 2004) (stating that, when “as a
matter of substantive law recovery is impossible without demonstrating that the plaintiff
sustained such damages,” “[t]o some degree . . . Rule 9(g) demands more by way of a
statement of this aspect of the claim than is required by Rule 8(a)(2).”).2 While
Armstrong may not need to plead the precise dollar amount of its losses, see id., or
necessarily identify the particular customers lost, the Court concludes that it must at
least allege “facts showing an established business and the amount of sales before and
after the disparaging publication, along with evidence of causation.” Browning v.
Clinton, 292 F.3d 235, 245 (D.C. Cir. 2002) (stating such as an alternative to “identifying
2

Cf. National Numismatic Certification, LLC. v. 1. eBay, Inc., 2008 WL 2704404,
at *20 (M.D. Fla. July 8, 2008) (footnotes omitted):
Plaintiffs stress that at least one judge in this district has held that the
requirement of pleading special damages is subject to the general pleading
requirements of Federal Rule of Civil Procedure 8(a) and not Rule 9(g). See
Leavitt v. Cole, 291 F. Supp. 2d 1338, 1344-45 (M.D. Fla. 2003). In that
case, the Court described the history of “special damages” in the law of
defamation and concluded that the term relates to the “cause of action for
actual loss” and not “the remedy of damages.” Id. at 1343. Because the
purpose of Rule 9(b) was limited to “giving proper notice of certain types of
damage,” the Court concluded, it did not warrant specificity in pleading
special damages as part of a trade libel claim in Federal Court. Id. at 1345.
To the contrary, Florida law requires a trade libel plaintiff to prove special
damages as part of his or her claim, and Rule 9(g) unequivocally states that
“[i]f an item of special damage is claimed, it must be specifically stated.”
Even if Leavitt correctly describes the purpose behind Rule 9(g), it is
impossible to ignore that the plain language of the Rule squarely
encompasses one of the elements of establishing a trade libel claim.
Accordingly, Rule 9(g) requires Plaintiffs to plead special damages with
specificity.
6

. . . particular customers whose business has been lost” as a means of complying with
Rule 9(g)); cf. Teilhaber, 791 P.2d at 1168 (“If it is not a practical possibility to show
specific losses, damages may then be proved by evidence similar to that used to prove
lost profits resulting from a breach of contract.”).3
Armstrong has not asserted facts that make that showing nor has it identified any
reason why, if it suffered such a loss, it would be impracticable for it to plead such facts.
Armstrong contends that, until discovery is conducted, it cannot determine the “number
of statements, to whom they were made and when, and the full breadth of the
disparagement.” Docket No. 31 at 5. In order to plead the counterclaim at all, however,
Armstrong must be aware of at least some disparaging statements. Moreover, it fails to
explain why discovery is required for it to obtain information regarding its own sales.4
To plead special damages in this “disfavored cause[] of action,” Wright & Miller, supra,
at § 1310, Armstrong must allege that information within its control. Because
Armstrong has failed to allege any such facts, the Court finds that its counterclaim for
commercial disparagement must be dismissed.

3

Armstrong points out that the Teilhaber decision resolved the issue of proof at
trial rather than sufficiency of pleading. However, the Teilhaber court relied upon
Ratcliffe v. Evans, 2 Q.B. 524 (C.A. 1892) as “one of the first opinions to reject the strict
approach” to special damages. See Teilhaber, 791 P.2d at 1167-68. In Ratcliffe, as
quoted by the Teilhaber court, the court stated that “[a]s much certainty and particularity
must be insisted on, both in pleading and proof of damages, as is reasonable . . . .”
(emphasis added).
4

In fact, in support of its claim for tortious interference with prospective business
advantage, Armstrong alleges that “General Steel’s wrongful conduct,” i.e., disparaging
statements, “has actually induced third parties to breach their sales agreements with
Armstrong.” Docket No. 23 at 24, ¶ 45. To the extent there is a factual basis for such
an allegation, Armstrong should be able to identify at least some of the customers it
lost.
7

B. Deceptive Trade Practices
General Steel argues that Armstrong failed to adequately plead its second
counterclaim for deceptive trade practices. General Steel, however, requests that the
Court “strike” Armstrong’s deceptive trade practices counterclaim pursuant to Rule 12(f)
because it expects that the Court will grant Armstrong leave to “re-plead” the
counterclaim. Rule 12(f) provides the Court with the authority to “strike from a pleading
an insufficient defense or any redundant, immaterial, impertinent, or scandalous
matter.” General Steel does not explain, nor does the Court see, how Rule 12(f)
applies to its arguments regarding Armstrong’s deceptive trade practices claim.
Therefore, the Court construes General Steel’s arguments as a request that the
deceptive trade practices counterclaim be dismissed.
Armstrong’s deceptive trade practices claim arises under the Colorado
Consumer Protection Act (“CCPA”), Colo. Rev. Stat. § 6-1-101, et seq. See Docket No.
23 at 23, ¶ 36. “[T]he CCPA works to deter and punish businesses for consumer
fraud.” HealthONE of Denver, Inc. v. UnitedHealth Group Inc., No.
10–cv–01633–WYD–BNB, 2011 WL 1135015, at *3 (D. Colo. March 28, 2011) (citing
Rhino Linings USA, Inc. v. Rocky Mountain Rhino Lining, Inc., 62 P.3d 142, 146 (Colo.
2003)). A CCPA cause of action consists of the following elements: “(1) that the
defendant engaged in an unfair or deceptive trade practice; (2) that the challenged
practice occurred in the course of defendant's business, vocation or occupation; (3) that
it significantly impacts the public as actual or potential consumers of the defendant's
goods, services, or property; (4) that the plaintiff suffered injury in fact to a legally

8

protected interest; and (5) that the challenged practice caused the plaintiff’s injury.”
Rhino Linings, 62 P.3d at 146-47.
As General Steel points out and Armstrong admits, claims related to false
representations allegedly made in violation of the CCPA must be pled with particularity
pursuant to Fed. R. Civ. P. 9(b). See Cavitat Med. Techs., Inc. v. Aetna, Inc., No.
04-cv-01849, 2006 WL 218018, at *3 (D. Colo. Jan. 27, 2006); Duran v. Clover Club
Foods Co., 616 F. Supp. 790, 793 (D. Colo. 1985). The Tenth Circuit “requires a
complaint alleging fraud to ‘set forth the time, place and contents of the false
representation, the identity of the party making the false statements and the
consequences thereof.” Koch v. Koch Industries, Inc., 203 F.3d 1202, 1236 (10th Cir.
2000) (citing Lawrence Nat’l Bank v. Edmonds (In re Edmonds), 924 F.2d 176, 180
(10th Cir. 1991)).5
Armstrong attempts to plead the first element of a CCPA claim by alleging that
General Steel told Armstrong’s customers and potential customers that “Armstrong
does not have proper facilities; that it consists of one or two individuals; that those
individuals were fired from General Steel for committing fraud against customers; that
Armstrong would take the customers [sic] money and not deliver the building ordered;
and that Armstrong Steel would soon be out of business.” Docket No. 23 at 19-20,
¶¶ 18-19. Armstrong, however, fails to identify who made the statements or where they
made them. Furthermore, Armstrong does not identify the date of any statement.

5

See Koch, 203 F.3d at 1236-37 (“Rule 9(b)’s purpose is ‘to afford defendant fair
notice of plaintiff’s claims and the factual ground upon which [they] are based . . . .’”)
(citation omitted).
9

Instead, all that can be inferred from the complaint is that the statements were likely
made after May 4, 2010. See Docket No. 23 at 20-21, ¶¶ 21, 23. The Court concludes
that this falls short of Rule 9(b)’s particularity requirements. Cf. Matthews v. LaBarge,
Inc., 407 F. App’x 277, 282 (10th Cir. 2011) (unpublished) (concluding that a proposed
amended complaint failed to meet Rule 9(b)’s requirements because, even though it
“identifie[d] the individual who allegedly promised Mr. Matthews the promotion during an
interview, there remain[ed] no indication of where this promise was made, the means of
communication, or what words conveyed the promise”). “At a minimum, Rule 9(b)
requires that a plaintiff set forth the who, what, when, where and how of the alleged
fraud.” United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472
F.3d 702, 726-27 (10th Cir. 2006) (quotation marks and citation omitted). Because
Armstrong failed to specifically allege the who, when, where, and how of the statements
underlying its CCPA claim, the Court will dismiss the second counterclaim pursuant to
Rules 9(b) and 12(b)(6).
C. Tortious Interference with Prospective Business Advantage
General Steel seeks dismissal of Armstrong’s third counterclaim for tortious
interference with prospective business advantage.6 The entirety of General Steel’s
6

The Court notes that, from a review of Armstrong’s allegations, it appears that it
is attempting to assert a claim for tortious interference with a contractual relationship
rather than with prospective business advantage. See Wasalco, Inc. v. El Paso County,
689 P.2d 730, 732 (Colo. App. 1984) (“[T]o prove intentional interference with a
contractual relationship it is necessary to show, among other elements, that there was
an underlying contract between plaintiff and a third party. To prove tortious interference
with a prospective contractual relationship, it is not necessary that there be an
underlying contract. But there must be a showing of intentional and improper
interference by the defendant which prevented formation of a contract between plaintiff
and the third party.”) (citations omitted).
10

argument on that point is as follows:
This claim fails in a manner that is hand-in-glove with the claim for
commercial disparagement. “If the alleged impropriety is an allegedly
defamatory statement, then the interference claim must fail if the statement
is not an actionable defamation.” The essential element of intentional and
improper interference preventing formation of a contract is thus absent.
Because Count I is not averred in a fashion stating actionable defamation,
Count III must be dismissed along with it.
Docket No. 24 at 6 (quoting TMJ Implants, Inc. v. Aetna, Inc., 498 F.3d 1175, 1201
(10th Cir. 2007)). General Steel, however, does not specify the relevant pleading
deficiency in Count I.
As discussed above, General Steel sought dismissal of Count I for failure to
adequately plead special damages. Special damages, however, are not always an
element of a defamation claim. See Restatement (Second) of Torts § 573 (“One who
publishes a slander that ascribes to another conduct, characteristics or a condition that
would adversely affect his fitness for the proper conduct of his lawful business, trade or
profession, or of his public or private office, whether honorary or for profit, is subject to
liability without proof of special harm.”). General Steel does not articulate whether it
believes that the tortious interference claim fails because the underlying defamation
requires a showing of special damages or because the nature of the alleged statements
do not constitute actionable negligence. See TMJ Implants, 498 F.3d at 1201
(concluding that, because the product disparagement claim was based upon nonactionable statements of opinion, the tortious interference claim based upon the same
statements could not proceed). Because General Steel does not provide a persuasive
basis for dismissal of Armstrong’s tortious interference claim, and because any such
11

basis is not obvious from the face of the counterclaim, the Court will deny General
Steel’s request to dismiss Armstrong’s tortious interference counterclaim.
D. Civil Conspiracy
Armstrong asserts a counterclaim for civil conspiracy against General Steel. The
elements of a civil conspiracy are as follows: “‘[T]here must be: (1) two or more
persons, and for this purpose a corporation is a person; (2) an object to be
accomplished; (3) a meeting of the minds on the object or course of action; (4) one or
more unlawful overt acts; and (5) damages as the proximate result thereof.’” Jet
Courier Serv., Inc. v. Mulei, 771 P.2d 486, 502 (Colo. 1989) (quoting More v. Johnson,
568 P.2d 437, 439-40 (Colo. 1977)); see Walker v. Van Laningham, 148 P.3d 391, 396
(Colo. App. 2006). General Steel argues that the civil conspiracy counterclaim must be
dismissed due to Armstrong’s failure to allege the required “meeting of the minds.” The
Court agrees.
Armstrong alleges that “General Steel, through its agents Jeffrey Knight and
Nathan Wright, and Jon Abbotts have entered into a strategic relationship.” Docket No.
23 at 25, ¶ 49. Armstrong further alleges that Abbotts met with Knight and Wright on
May 4, 2010 “to allow for the exchange of misappropriated confidential information
belonging to Armstrong related to its business practices,” that the information “was then
used by General Steel as the basis for making disparaging and false
misrepresentations of Armstrong,” and that “General Steel through its intentional
tortuous [sic] activity in concert with Abbotts has taken steps to intentionally and
purposefully harm Armstrong’s reputation and business to their own benefit.” Docket

12

No. 23 at 25, ¶¶ 50-52. From these allegations, the purpose of the “strategic
relationship” is unclear. The Court cannot determine whether the receipt and later use
of the confidential information by General Steel was merely a consequence of that
relationship or, rather, whether General Steel and Abbotts’ relationship had as a
specific purpose the illegal use of the information. “[T]he well-pleaded facts do not
permit the court to infer more than the mere possibility of misconduct,” and, therefore,
“the complaint has alleged – but it has not ‘show[n]’ – ‘that the pleader is entitled to
relief.’” Iqbal, 129 S. Ct. at 1950 (quoting Fed. R. Civ. P. 8(a)(2)). Therefore, the Court
will dismiss Armstrong’s civil conspiracy counterclaim pursuant to Rule 12(b)(6).
E. Punitive Damages
General Steel argues that Armstrong’s request for punitive damages, see Docket
No. 23 at 27, must be stricken for failing to comply with the Colorado statute which
authorizes the recovery of punitive damages. See Colo. Rev. Stat. § 13-21-102(1.5)(a).
Armstrong does not dispute that, as pled, the request is deficient. See Docket No. 31
at 10, ¶ 23. The Court will therefore strike the request for punitive damages from
Armstrong’s prayer for relief. See Glaser v. Jordan, No. 09-cv-01758-REB-MJW, 2010
WL 1268151, at *2 (D. Colo. March 30, 2010) (striking pursuant to Fed. R. Civ. P.
12(f)(2) a request for punitive damages that violated Colo Rev. Stat. § 13-21102(1.5)(a)).
F. Leave to Amend
In response to General Steel’s motion, Armstrong requests, to the extent the
Court concludes that there are pleading deficiencies, that it be afforded leave to amend

13

its counterclaims. The Local Rules in this District are clear that a motion “shall be made
in a separate paper.” D.C.COLO.LCivR 7.1.C. No motion to amend is pending before
the Court. See Calderon v. Kansas Dep’t of Social and Rehabilitation Servs., 181 F.3d
1180, 1186 (10th Cir. 1999) (“We have recognized the importance of Fed.R.Civ.P. 7(b)
and have held that normally a court need not grant leave to amend when a party fails to
file a formal motion.”). Therefore, the Court has not considered Armstrong’s request to
amend.
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that plaintiff’s Motion Under Federal Rule of Civil Procedure 12 to
Dismiss, to Strike, and for a More Definite Statement [Docket No. 24] is GRANTED in
part and DENIED in part. It is further
ORDERED that Armstrong’s first counterclaim for commercial disparagement,
second counterclaim for deceptive trade practices, and fourth counterclaim for civil
conspiracy are DISMISSED without prejudice. It is further
ORDERED that Armstrong’s request for punitive damages in its prayer for relief,
see Docket No. 23 at 27, is STRICKEN.

DATED June 10, 2011.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

14