Scrappost LLC v. Peony Online, Inc.
OPINION AND ORDER Granting in Part and Denying in Part 55 Motion for Summary Judgment. Signed by District Judge Sean F. Cox. (JMcC)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
Case No. 14-14761
Hon. Sean F. Cox
Peony Online, Inc.,
OPINION & ORDER GRANTING IN PART AND DENYING IN PART
PEONY’S MOTION FOR SUMMARY JUDGMENT (Doc. #55)
This case involves a dispute between two companies that publish pricing information
relating to the scrap metal industry. Plaintiff Scrappost, LLC (“Scrappost”) asserts that
Defendant Peony Online Inc. (“Peony”) fraudulently accessed Scrappost’s private listings and
subsequently harassed subscribers until they agreed to stop subscribing to Scrappost.
Scrappost’s second amended complaint includes claims for business defamation, injurious
falsehood, intentional interference with business expectancy, and fraudulent misrepresentation.
Currently before the Court is Peony’s Motion for Summary Judgment. (Doc. # 55, Peony
Br.). Scrappost has responded to the motion (Doc. # 63, Scrappost Resp.), and Peony has
replied. (Doc. # 66, Peony Reply). The Court finds that oral argument would not significantly
aid in the decisional process and therefore orders that the instant motion will be decided upon the
briefs. See E.D. Mich. LR 7.1(f).
For the reasons that follow, the Court shall GRANT IN PART and DENY IN PART
Peony’s Motion for Summary Judgment. The Court shall GRANT Peony’s motion to the extent
that it seeks dismissal of Count I (business defamation), Count II (Injurious Falsehood), and
Count IV (Fraudulent Misrepresentation). However, Peony’s motion is DENIED to the extent
that it seeks dismissal of Count III (Tortious Interference with Business Expectancy).
The purpose of the Scrappost business is to connect scrap metal buyers and sellers in
order to enable the direct transaction of business in one forum. (Doc. #53 at ¶ 3; Doc. #65 at ¶
3). Scrappost’s website, which went live in September 2013, provides “an online marketplace
for scrap [metal] dealers, brokers and consumers – offering a single destination to easily get
scrap market news, commodity pricing and real time offers to buy/sell scrap materials.” (Doc. #
53 at ¶ 1; Doc. # 65 at ¶ 1). Scrappost considers itself to be a “Craigslist” type of business for
the scrap metal industry. (Ex. B to Doc. # 53 at 25).
Peony is also in the business of publishing pricing information relating to the scrap metal
industry. Peony has offered its subscribers a Consumer Broker Exporter’s (“CBE”) report since
1993. (Doc. # 53 at ¶ 11; Doc. # 65 at ¶ 11). The CBE report is a single-page, daily report that
contains 70 price quotes for several scrap metal varieties. The purpose of the CBE report is to
provide buyers and sellers of scrap metal with price information. (Doc. # 53 at ¶ 16; Doc. # 65
at ¶ 16).
In 2014, Peony began offering the Instant Quote (“IQ”) service. Similar to Scrappost,
Pursuant to this Court’s Practice Guidelines, Peony has filed a Statement of Material
Facts Not in Dispute (Doc. # 56, Peony Stmt.) and Scrappost has filed a Counter-Statement of
Disputed Facts (Doc. # 62, Scrappost Stmt.).
Peony IQ provides subscribers with the ability to directly post scrap metal for sale. In order to
subscribe to the IQ service, subscribers were required to sign an exclusivity provision contained
within IQ’s subscriber agreement. (Peony’s Stmt. ¶¶ 3-4; Scrappost’s Stmt. ¶¶ 3-4). The
exclusivity provision reads:
Subscriber agrees to list his or her materials and prices on Peony Instant Quote
exclusively. Subscriber agrees not to list any prices in a similar fashion (i.e.,
along with his or her name, company name and contact information) on any other
web sites or price reports, except on Peony.s [sic] CBE and subscriber.s [sic] own
web site, during his or her subscription to Peony.s [sic] CBE/Instant Quote.”
(Ex. 2 to Peony Br.).
Peony’s co-president, Vivian Ge, has testified that Peony has not taken any action against
Peony subscribers for violating the exclusive listing provision and that Peony would never take
such action. (Ex. A to Scrappost Resp. at 65-69). Moreover, Peony co-president Ganru Ge has
testified that Scrappost coming into existence was one reason why Peony IQ was created. (Ex. B
to Scrappost’s Resp. at 194). Ganru Ge also testified that one of the reasons for the exclusivity
provision was to prevent third-parties from trying to enter into relationships with Peony
subscribers. (Id. at 211).
Events Giving Rise To Instant Action
According to Scrappost, Peony relies on its exclusivity provision as pretext to call and
harass Scrappost subscribers until the subscribers stop listing on Scrappost’s website. Peony
admits that it called Peony subscribers that were also listing on Scrappost’s website. However,
Peony asserts that it was justified in taking the actions that it did because Peony believed that
Scrappost was stealing Peony’s information/subscribers.
In order to monitor Scrappost’s private listings, and to contact Peony subscribers who
were also listing on Scrappost, Peony obtained access to the non-public portion of Scrappost’s
website by asking Jimmy Chen (owner of Greentex) to subscribe to Scrappost. (Ex. 13 to
Peony’s Br. at 53-54). Greentex would then provide Peony with the daily emails that Scrappost
sent to Greentex. (Ex. 1 to Peony’s Br. at 183-84). These emails contained customer contact
information and price information. (Id. at 184).
Peony’s Zoltan Badau began receiving the Scrappost emails on a daily basis. (Ex. K to
Scrappost Resp. at 54). Badau testified that he was responsible for checking which of Peony’s
subscribers were also listing on Scrappost’s website. (Id. at 55). Badau explained that IQ
subscribers were subject to an “exclusive contract” and that their listings on Scrappost
constituted a breach of the contract. (Id. at 57). Although he could not recall the details of his
conversations, Badau admitted that it was his practice to continue to call Peony IQ subscribers
until the subscribers removed their listings from Scrappost’s website. (Id. at 70-71). Badau
acknowledged that there were some subscribers that he called anywhere from 5-10 times and
some as many as 10 or more times. (Id. at 69-71).
In addition to IQ subscribers, Badau testified that he also called Peony CBE subscribers.
(Id. at 66-68). These subscribers were not subject to any exclusivity provision, but he called to
ensure that the subscribers were aware that their listings were posted on Scrappost’s website.
(Id.). Peony stopped accessing the private listings in January 2016 because Scrappost terminated
the Greentex account. (Ex. B to Scrappost Resp. at 186).
MadDog’s Acquisition of Scrappost
On October 31, 2015, MadDog Technology paid $200,000 to acquire a 50% ownership
interest in Scrappost. (Peony Stmt. ¶ 14; Scrappost Stmt. ¶ 14). At the time of MadDog’s
acquisition, Scrappost had approximately 500 subscribers. (Peony Stmt. ¶ 15; Scrappost Stmt. ¶
15). After MadDog’s acquisition, Scrappost’s subscriber count fell by approximately 50%.
(Peony Stmt. ¶ 22; Scrappost Stmt. ¶ 22).
An investigation into Scrappost’s “market potential” was subsequently initiated. (Ex. 5
to Peony Br. at 58). Scrappost began a “calling campaign” to determine whether or not
Scrappost would want to start hiring salespeople or whether it should invest first. (Id.). With
respect to Scrappost’s brokerage offering, Scrappost concluded that it needed to “innovate.” (Id.
at 65). With respect to Scrappost’s subscription offering, Scrappost concluded that it needed to
determine the reason for, and effect of, Peony’s actions. (Id.). The value in Scrappost’s
subscription potential was substantially reduced and Scrappost did not want to hire people to sell
subscriptions while the instant lawsuit was pending. (Id. at 66). However, Scrappost still hired
an additional employee to sell into the subscription market. (Ex. I to Scrappost Resp. at 40).
Scrappost’s Subscription Count
Scrappost’s business model is “software as a subscription,” wherein Scrappost derives
revenue from the annual or monthly subscription fees it charges to users of its website. (Ex. D to
Doc. # 53 at 163). Scrappost offers monthly or yearly subscriptions, however a majority of its
paying subscribers subscribe on a month-to-month basis. (Ex. 3 to Peony’s Br. at 19-21, 24).
Scrappost has also offered free trials to subscribers.2 (Ex. E to Scrappost Resp. at 61).
Scrappost alleges that it lost subscriptions as a result of Peony’s actions. The following
is an overview of Scrappost’s year-to-year subscriber count. (See Ex. F to Scrappost Resp.).
In so doing, Scrappost paid for subscriptions on a company credit card. (Ex. E to
Scrappost Resp. at 61; Ex. 15 to Peony Br.).
Between September 2013 and September 2014, Scrappost’s subscriber count grew from 0 to 306.
(Id.). Between September 2014 and September 2015, Scrappost’s subscriber count grew from
306 to 501. (Id.). Between September 2015 and May 2016, Scrappost’s subscriber count
decreased from 501 to 304. (Id.). Since September 2013 through May 2016, Scrappost has had
766 subscription cancellations and it has experienced a cumulative “churn” (a term used to
describe subscription cancellations) of 72%. (Id.).
Matthew Newman testified that he spoke to some of Scrappost’s former subscribers
regarding their reasons for leaving Scrappost.3 Newman believes that the subscribers he spoke to
stopped listing on Scrappost as a result of Peony’s phone calls. (Ex. 10 to Peony’s Br. at 105).
Newman also assumes that the subscribers he did not speak to left as a result of Peony. (Id.).
Sanford Rosen, one of Scrappost’s principals, testified that he believed the decline in
subscriber count can be attributed to a number of things, including: a more difficult market and
Peony’s actions. (Ex. 11 to Peony’s Br. at 42-43).
To support its claim for damages, Robert Cell (managing director of MadDog
Technology) created a valuation summary as to Scrappost. Cell claims that Scrappost’s
valuation has been eroded as a result of Peony’s actions. Scrappost’s damages can be quantified
in two ways: (1) the degradation of new customers who would have joined Scrappost but for
Peony’s conduct; and (2) the churn/loss of existing customers. (Ex. I to Scrappost Resp. at 36).
Cell estimates that Scrappost would have reached 3,400 subscriptions, rather than 1,200
To the extent that Scrappost relies upon the “Notes” column of Scrappost’s Exhibit J to
prove the content of Newman’s conversations with subscribers, it may not do so. The summary
of Newman’s conversations with former subscribers is inadmissible hearsay.
subscriptions, had Peony not interfered with Scrappost’s business relationships. (Id.). Cell
further estimates that 50-75% of Scrappost’s churn is attributed to Peony, which resulted in a
valuation loss of between $11.9 and $18.6 million. (Id. at 36-37).
Scrappost initiated the instant action on December 17, 2014. (Doc. #1). Scrappost’s
second amended complaint is the operative complaint in this case. (Doc. # 12, Compl.). Peony
is the only named Defendant in Scrappost’s complaint. Scrappost alleges the following claims
against Peony: (1) Count I - Business Defamation; (2) Count II - Injurious Falsehood; (3) Count
III - Intentional Interference With Business Expectancy; and (4) Count IV - Fraudulent
Misrepresentation. Scrappost alleges that Peony’s actions have caused “significant damages to
Scrappost in lost revenue and lost customers.” (Compl. at ¶ 22). Scrappost seeks monetary relief
for damages sustained.
Peony filed the instant Motion for Summary Judgment on June 20, 2016. (Doc. # 55).
Peony seeks dismissal of Scrappost’s complaint, arguing that Scrappost has failed to offer
admissible evidence sufficient to raise a dispute of fact as to any of its claims. Peony also argues
that Scrappost’s damages are impermissibly speculative. Scrappost opposes Peony’s motion.
(Doc. # 63).
Under Fed. R. Civ. P. 56(c), summary judgment is proper “if the pleadings, depositions,
On March 6, 2015, Peony filed a counter-claim alleging claims for tortious interference,
unfair competition, unjust enrichment and misappropriation of hot news. (Doc. # 14). Scrappost
filed Motion for Summary Judgment, seeking dismissal of Peony’s counter-claim, on June 20,
2016. (Doc. # 52). On February 22, 2017, this Court entered an Opinion and Order granting
Scrappost’s motion (Doc. # 85) and consequently dismissed Peony’s counter-claim. (Doc. # 86).
answers to interrogatories, and admissions on file, together with the affidavits, if any, show that
there is no genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1984), quoting FED.
R. CIV. P. 56(c).
“The party that moves for summary judgment has the burden of showing that there are no
genuine issues of material fact in the case.” LaPointe v. United Autoworkers Local 600, 8 F.3d
376, 378 (6th Cir. 1993). “The moving party may meet its burden by showing that the
nonmoving party lacks evidence to support an essential element of its case.” Barnhart v.
Pickrel, Schaeffer & Ebeling Co., 12 F.3d 1382, 1389 (6th Cir. 1993). The plaintiff must come
forth with more than a “mere scintilla of evidence” in support of his or her position in order to
survive summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251 (1986). “The
court must view the evidence, all facts, and any inferences that may permissibly be drawn from
the facts in the light most favorable to the nonmoving party.” Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587 (1986).
Scrappost’s second amended complaint asserts the following counts against Peony:
business defamation; injurious falsehood; intentional interference with business expectancy; and
fraudulent misrepresentation. The Court concludes that Scrappost’s claims for business
defamation, injurious falsehood, and fraudulent misrepresentation fail. However, the Court finds
that issues of fact exist as to whether Peony tortiously interfered with Scrappost’s business
relationships/expectancies. As such, the Court shall not grant summary judgment in Peony’s
favor as to this claim.
In Count I of its amended complaint, Scrappost asserts a claim for business defamation.
The elements of a defamation claim are as follows:
(1) a false and defamatory statement concerning the plaintiff, (2) an unprivileged
publication to a third party, (3) fault amounting to at least negligence on the part
of the publisher, and (4) either actionability of the statements irrespective of
special harm, or the existence of special harm caused by the publication.
Gonyea v. Motor Parts Fed. Credit Union, 192 Mich. App. 74, 76-77 (1991). These elements
must be specifically pled, “including the allegations with respect to the defamatory words, the
connection between the plaintiff and the defamatory words, and the publication of the alleged
defamatory words.” Id. The Court concludes that Scrappost has failed to offer admissible
evidence of any defamatory statement. As such, Scrappost’s business defamation claim must
Here, Scrappost alleges that Peony’s employee, Zoltan Badau, contacted Scrappost
subscribers and made false and defamatory statements about Scrappost. Specifically, Matthew
Newman testified that Scrappost subscribers informed him that Badau made the following
statements to them: (1) that Scrappost was engaged in wrongdoing and in illegal conduct; (2)
that Peony was actively involved in litigation with Scrappost/Peony had several lawsuits pending
against Scrappost; and (3) that Scrappost had stolen Peony’s information. (See Ex. 3 to Peony’s
Br. at 90-96).
The problem with Scrappost’s reliance on Newman’s testimony is that it is hearsay:
Newman is testifying as to out-of-court statements made by Scrappost subscribers. It is well
settled that hearsay evidence may not be considered on summary judgment. Jacklyn v. ScheringPlough Healthcare Prods. Sales Corp., 176 F.3d 921, 927 (6th Cir. 1999).
Scrappost unpersuasively attempts to remedy this by arguing that: (1) Peony has not
made an “objection” to the material cited; (2) that the statement of a party opponent is not
hearsay; and (3) that Badau “did not deny” that he made these statements. All three arguments
First, Federal Rule of Civil Procedure 56(c)(2) states that a “party may object that the
material cited to support or dispute a fact cannot be presented in a form that would be admissible
in evidence.” Fed. R. Civ. P. 56(c)(2). The Court finds that Peony has sufficiently objected to
the admission of Newman’s testimony. (See Peony’s Br. at. 8, 11-12).
Second, Scrappost’s reliance on Federal Rule of Evidence 801(d)(2) is misplaced because
it disregards which out-of-court statement is being introduced for its truth. Here, Scrappost is
attempting to introduce its subscribers’ out-of-court statements–through Newman–to implicate
Peony. There are two sets of out-of-court statements at issue. First, there are the defamatory,
out-of-court statements made by Badau to subscribers. Second, there are the out-of-court
statements made by subscribers to Matthew Newman, which recounted Badau’s statements.
Even assuming that Rule 801(d)(2) applies to the statements allegedly made by Badau to
Scrappost’s subscribers,5 Scrappost fails to advance any argument as to the out-of-court
statements made by Scrappost’s subscribers to Newman. In order for the subscribers’ statements
to be admissible, they must either be excluded from the hearsay definition or fall within a
hearsay exception. The Court concludes that Newman’s testimony–that he was told by
subscribers that Badau called the subscribers and made defamatory statements about
Badau’s defamatory statements arguably fall outside the definition of hearsay because
they are not being introduced for the truth of the matter asserted. This is especially true in the
case of a defamation claim, where the plaintiff alleges that the defendants’ statements are false.
Scrappost–contains inadmissible hearsay.
Third, Scrappost mischaracterizes Badau’s testimony. Even in a light most favorable to
Scrappost, it is a far reach to interpret Badau as “not denying” that he made the defamatory
statements alleged. With respect to any conversations between Badau and Scrappost subscribers,
Badau admitted that he called subscribers. (Ex. K to Scrappost’s Resp. at 66-68). However,
when Badau was specifically asked about the contents of his conversations and about the
defamatory statements at issue, Badau testified that he could not recall making such statements.
Because Badau’s testimony is non-committal–consisting of his inability to recall whether
he made the defamatory statements–Scrappost fails to create a genuine issue of material fact.
Other courts have similarly concluded that such testimony is insufficient to raise a genuine issue
of material fact. See Smith v. LVNV Funding, LLC, 2014 WL 4441195, at *1 n.1 (E.D. Tenn.
Sept. 9, 2014) (noting that “testimony that the plaintiff does not remember” whether an event
took place “does not amount to [a] sufficient denial to create a genuine issue of material fact”);
McBride v. Vill. of Michiana, 1998 WL 276139, at *4 (W.D. Mich. April 2, 1998) (concluding
that a witness’s inability to “remember several important details” about a phone call “failed to
create an issue of fact”). As such, Scrappost’s business defamation claim fails.
In Count II of its amended complaint, Scrappost asserts a claim for injurious falsehood.
“Injurious falsehood was recognized as an actionable claim in Michigan in Knollenberg v.
Ramirez, 127 Mich. App. 345 (1983). Neshawat v. Salem, 173 F.3d 357, 362 (6th Cir. 1998).
“The Michigan Court of Appeals essentially adopted the elements of injurious falsehood as set
forth in the Restatement (Second) of Torts.” Id. The “gist of the tort is some interference with
an economically advantageous relationship which results in pecuniary loss rather than action that
directly affects property.” Knollenberg, 127 Mich. App. at 178. “Injurious falsehood cases
typically concern derogatory or disparaging communications...” Id.
To support its injurious falsehood claim, Scrappost relies on the following statements
allegedly made by Badau to Scrappost subscribers: (1) Scrappost was engaged in illegal conduct;
(2) Scrappost members who were not IQ subscribers could not post on Scrappost’s website; and
(3) Peony filed several lawsuits against Scrappost. (Scrappost Resp. at 8). Scrappost argues that
“with respect to the statements at issue ... Peony’s Badau doesn’t deny having” made these
statements. (Scrappost’s Resp. at 7). Scrappost concludes that these statements were false and
that Peony’s intent to harm Scrappost is apparent from the fact that Peony admitted that it
established its IQ product as a direct response to Scrappost. (Id. at 8).
The Court concludes that Scrappost’s injurious falsehood claim suffers from the same
flaw as its business defamation claim. Namely, that there is no admissible evidence establishing
that Badau made such statements to Scrappost’s subscribers. Badau’s testimony only establishes
that he does not recall making these statements.
Tortious Interference with Business Expectancy
In Count III of its amended complaint, Scrappost alleges a claim for tortious interference.
Scrappost argues that Peony tortiously interfered with Scrappost’s subscriber relationships by (1)
making defamatory statements to subscribers and (2) by fraudulently acquiring a Scrappost
membership through Greentex, thereby accessing Scrappost’s private listings and
calling/harassing Scrappost’s subscribers. (Scrappost Resp. at 10-11).
Under Michigan law, a plaintiff must establish the following elements to prevail on a
claim for tortious interference with business expectancy: (1) the existence of a valid business
relationship or expectancy; (2) knowledge of the relationship or expectancy on the part of the
defendant interferer; (3) an intentional interference inducing or causing a breach or termination
of the relationship or expectancy; and (4) resulting damage to the party whose relationship or
expectancy has been disrupted. Wausau Underwriters Ins. Co. v. Vulcan Dev., Inc., 323 F.3d
396, 404 (6th Cir. 2003).
The parties appear to dispute whether or not Scrappost can establish the third element.
Specifically, Peony argues that Scrappost cannot establish that: (1) Peony’s motives were
improper; and (2) that Peony’s actions caused any subscribers to terminate their relationships
with Scrappost. At this juncture, the Court concludes that issues of fact exist as to whether or
not Peony’s motives in interfering with Scrappost’s business expectancies were proper and
whether Peony’s actions caused Scrappost to lose subscribers.
Intentional Interference – Improper Motive
The third element of a tortious interference claim requires the plaintiff to demonstrate
that the third party was induced to break off the business relationship “by an intentional act that
is either: (1) wrongful per se; or (2) lawful, but done with malice and unjustified in law.” Via
The Web Designs, LLC v. Beauticontrol Cosmetics, Inc., 148 Fed. App’x 483 (6th Cir. 2005)
(citing CMI Int’l, Inc. v. Internet Int’l Corp., 251 Mich. App. 125, 131 (2002)). Under the latter
instance, the plaintiff “necessarily must demonstrate, with specificity, affirmative acts by the
[defendant] which corroborate the unlawful purpose of the interference.” Id.
As a general matter, an act does not constitute improper motive or interference “[w]here
the defendant’s actions were motivated by legitimate business reasons.” BPS Clinical Labs. v.
Blue Cross & Blue Shield of Mich., 217 Mich. App. 687, 699 (1996) (per curiam). “However,
where a defendant’s actions overreach the bounds of permissible interference and improperly
sabotage the contractual agreements of others, a defendant is not immune from liability.”
Kavanaugh v. VMC Indus., Inc., 2000 WL 33400199, at *3 (Mich. App. Nov. 21, 2000) (per
curiam). Importantly, “just because certain actions are taken ‘with the intent that they inure to
the personal or pecuniary benefit of the defendant cannot ... weave a broad and impenetrable
blanket of immunity from liability for those actions.’” Cranbrook Professional Bldg., LLC v.
Pourcho, 2005 WL 415678, at *3 (Mich. Ct. App. Feb. 22, 2005) (quoting Jim-Bob, Inc. v.
Mehling, 178 Mich. App. 71, 96 (1989)).
Here, Peony acknowledges that it had Greentex subscribe to Scrappost in order to enable
Peony to monitor Scrappost’s private listings. Peony further admits that it made phone calls to
certain subscribers until they removed their listings from Scrappost’s website. (Peony Br. at 8).
Despite these undisputed facts, Peony argues that Scrappost cannot establish improper motive
since “Peony’s actions in seeking to protect its exclusive listing agreement are motivated by a
legitimate business purpose.” (Peony Br. at 10). Specifically, Peony argues that it was justified
in calling all of the IQ subscribers that were listing on Scrappost’s website because these
subscribers were in violation of the exclusivity provision governing their relationship with
Peony. Peony’s argument is not persuasive.
Initially, the Court finds it worth noting that Peony deceitfully obtained access to the
non-public portion of Scrappost’s website without paying a subscription fee. Peony then used its
access to repeatedly call subscribers (who were also Peony subscribers) with the intent that the
subscribers leave Scrappost.
To the extent that Peony argues that it was justified in taking these actions, this Court has
previously noted that “the issue of justification is generally an issue for the jury.” SJF Material
Handling, Inc. v. Motor City Scrap, Inc., 2009 WL 4950465, at *12 (E.D. Mich. Dec. 15, 2009).
Moreover, the Court concludes that reasonable jurors could disagree as to whether or not
Peony’s interference with Scrappost was actually motivated by legitimate business reasons or
whether Peony used its exclusivity provision as a pretext to interfere with Scrappost’s business
relationships. The following undisputed facts make this a question of fact for the jury to resolve.
First, Peony admits that the reason it created Peony IQ (and the exclusivity provision) is partly
due to Scrappost coming into existence. Second, Peony admits that it never has, and does not
intend to, enforce the exclusivity provision against any of its IQ subscribers. In other words,
Peony will not take legal action against any subscriber that breaches this provision. Third,
Peony admits that it called all Peony subscribers that were listing on Scrappost’s site, not just
Peony IQ subscribers.
Peony also asserts that Scrappost cannot establish that Peony’s interference caused
subscribers to leave Scrappost because “[w]hile many of Scrappost’s subscribers cancelled their
subscriptions (or let them lapse)[,] there is no subscriber testimony as to why they did so.” (Id.
at 9). The Court is not persuaded. Taken in a light most favorable to Scrappost, the Court
concludes that there exists sufficient evidence to create a dispute of fact as to whether Scrappost
lost subscribers as a result of Peony’s actions.
First, while it is true that Scrappost fails to offer testimony from former subscribers
regarding why they stopped listing, it remains undisputed that Badau repeatedly called Scrappost
subscribers (that were also Peony subscribers) until these subscribers removed their prices from
Scrappost’s website. In fact, Peony concedes “that [Peony] told subscribers that because of the
exclusive agreement, [the subscribers] could not list pricing on a similar publication.” (Peony
Br. at 8). This admission, coupled with the undisputed fact that Scrappost lost subscribers–who
were listing on both sites–is sufficient to raise a dispute as to why the subscribers left.6 Whether
or not the inference in Scrappost’s favor is strong is another question – one which involves
weighing evidence and making credibility determinations.
As such, the Court concludes that there is sufficient evidence to raise a dispute of fact as
to why the subscribers who were repeatedly called by Peony cancelled their Scrappost
In Count IV of its amended complaint, Scrappost asserts a claim for fraudulent
misrepresentation. Scrappost alleges that Peony made a fraudulent misrepresentation, which
Scrappost relied upon to its detriment; namely, that “Peony fraudulently misrepresented its
identity and the purpose of its Scrappost membership with the intention of inducing Scrappost to
rely upon the representations and register Peony for a Scrappost membership.” (Compl. at ¶ 52).
Under Michigan law, the elements of fraudulent misrepresentation are:
(1) That defendant made a material representation; (2) that it was false; (3) that
Importantly, Peony’s concession distinguishes the instant case from SJF Material
Handling, Inc. v. Motor City Scrap, Inc., wherein this Court held that the failure to offer
testimony from a former customer as to why he stopped doing business with plaintiff rendered
the plaintiff’s tortious interference speculative. SJF Material Handling, WL 2009 4950465, at
when he made it he knew that it was false, or made it recklessly, without any
knowledge of its truth, and as a positive assertion; (4) that he made it with the
intention that it should be acted upon by plaintiff; (5) that plaintiff acted in
reliance upon it; and (6) that he thereby suffered injury.
Hi-Way Motor Co. v. Int’l Harvester Co., 247 N.W.2d 813, 816 (Mich. 1976) (internal quotation
marks and citations omitted). “An additional requirement for element five is that the plaintiffs’
reliance on the alleged misrepresentation must have been reasonable.” MacDonald v. Thomas
M. Cooley Law School, 724 F.3d 654, 662-63 (6th Cir. 2013) (internal citations omitted).
Scrappost’s argument in support of its misrepresentation claim is not persuasive.
Scrappost has not identified any affirmative misrepresentation made by Peony. There is no
evidence to support the allegation that Peony itself subscribed to Scrappost under the Greentex
alias, thereby misrepresenting its identity. Nor has Scrappost pointed to any evidence
establishing that Peony misrepresented its identity and intentions in writing to Scrappost.
Instead, the evidence establishes that Peony asked Greentex to subscribe to Scrappost and
that Greentex subsequently sent Scrappost’s private listings to Peony. Scrappost has not
established how Peony’s conduct, even if unethical, constitutes a material representation for
purposes of its fraudulent misrepresentation claim. To the extent that Scrappost now argues that
Greentex acted as an agent of Peony and that Peony should be treated as though it made the
representations itself, this argument is asserted to in a perfunctory manner and Scrappost has not
supported this argument with any applicable case law. As such, the Court concludes that
Scrappost’s fraudulent misrepresentation claim fails.
In its complaint, Scrappost alleges that Peony’s actions have caused “significant damages
to Scrappost in lost revenue and lost customers.” (Compl. at ¶ 21). In support of its claim for
damages, Scrappost offers the testimony of Robert Cell and a damages analysis (prepared by
Cell), which details the effect of Peony’s actions on Scrappost’s valuation.
Peony argues that Scrappost’s “lost value damages model is legally improper and
speculative.” (Peony Br. at 14). Specifically, Peony takes issue with: (1) Cell’s testimony that
Scrappost would have continued to grow at a rate equivalent to other “similar” businesses such
that a valuation analysis is appropriate; (2) Cell’s testimony that Scrappost would have continued
to obtain new subscriptions in the absence of Peony’s conduct; (3) Scrappost’s failure to
determine any alleged interference by Peony; and (4) Scrappost’s disregard of other factors,
which contributed to Scrappost’s inability to obtain new subscribers/loss of existing subscribers.
(Peony Br. at 15-17).
Damage principles under Michigan law have been summarized as follows:
The general rule is that remote, contingent, and speculative damages cannot be
recovered in Michigan in a tort action. A plaintiff asserting a cause of action has
the burden of proving damages with reasonable certainty, and damages predicated
on speculation and conjecture are not recoverable. Damages, however, are not
speculative simply because they cannot be ascertained with mathematical
precision. Although the result may only be an approximation, it is sufficient if a
reasonable basis for computation exists. Moreover, the law will not demand that
a plaintiff show a higher degree of certainty than the nature of the case permits . .
. . When the nature of a case permits only an estimation of damages or a part of
the damages with certainty, it is proper to place before the jury all the facts and
circumstances which have a tendency to show their probable amount.
Furthermore, the certainty requirement is relaxed where damages have been
established but the amount of damages remains an open question. Questions
regarding what damages may be reasonably anticipated are issues better left to the
trier of fact.
Health Call of Detroit v. Atrium Home & Health Care Servs., Inc., 268 Mich. App. 83, 96 (2005)
(internal quotation marks and citations omitted). “The type of uncertainty that will bar recovery
of damages is ‘uncertainty as to the fact of damage and not as to its amount.’” Northwoods Mfg.,
Inc. v. Linsmeyer, 2016 WL 3004419, at * 4 (Mich. App. May 24, 2016) (quoting Bonelli v.
Volkswagen of America, Inc., 166 Mich. App. 483, 511 (1988)).
At this juncture, the Court does not believe that it should rule as a matter of law that
Scrappost’s method of calculating damages is speculative and uncertain.7 As an initial matter,
the Court notes that disputes of fact exist as to whether or not Peony tortiously interfered with
Scrappost thereby causing damage. If a jury concludes that Scrappost has been damaged as a
result of Peony’s actions, Scrappost will be required to offer sufficient evidence from which a
jury could calculate the amount of such damage.
Here, Scrappost’s valuation summary and Robert Cell’s testimony identify damage
caused by the rate of churn (instances of subscription cancellations) experienced by Scrappost.
Cell testified that he approximated that Scrappost would have reached between 2,048 and 2,510
subscriptions had Scrappost not experienced the rate of churn that it did. According to Cell,
Scrappost’s annualized rate of subscription revenue decreased from a projection of $440,000 to
$178,000. (Ex. I to Scrappost Resp. at 13). Cell based his projection of Scrappost’s expected
growth by comparing the valuation of other companies in the subscription business. Cell further
testified as to the method of valuing subscriptions for companies in the software as a
But you take into the value of the subscription. How long it should go. So if
churn is five percent, it would be a 20-year life on average. If it’s 10 percent, it’s
10-year life. And the gross profit of that. And then the cost to acquire those
companies to get more of them to try and determine valuation.
To the extent that Peony argues that Scrappost has abandoned a damage model based on
actual lost revenue or lost profits, Scrappost has not made this assertion. And while Robert Cell
testified as to the diminution in Scrappost’s value, Peony disregards other testimony regarding
lost subscription revenue.
(Ex. G. To Scrappost Resp. at 69). As a result of its loss in subscription revenue, Scrappost’s
value in May 2016 was $21,888 as opposed to what it could have been–between $11,967,839
and $18,643,432–had it continued to grow without interference. (Ex. H to Scrappost Resp.).
Peony fails to explain how Scrappost’s method for calculating damages is speculative.
Instead, Peony’s arguments pertain largely to the weight and credibility of the evidence offered
in support of Scrappost’s damages claim. For example, Peony takes issue with Cell’s valuation
analysis. Peony argues that Scrappost speculates as to the hypothetical growth of its business.
Peony claims that its alleged interference had nothing to do with Scrappost’s ability to acquire
new subscribers. In making this argument, Peony misses the mark. Peony is merely pointing out
issues of fact, i.e., whether Peony’s actions affected Scrappost’s ability to acquire new
Peony similarly claims that “Scrappost has the burden to prove that but for the alleged
interference, it would have continued growing. If it cannot determine the level of alleged
interference, then any valuation analysis based on Peony’s conduct is pure speculation.” (Peony
Br. at 17). This argument suffers from the same flaw as the one above: it pertains to disputes of
Peony also argues that “the valuation model is based on subscription models from other
unidentified companies for which no analysis has been done to see if comparable to Scrappost.”
(Peony Br. at 16). This argument pertains to credibility rather than the speculative nature of
ascertaining damages. At trial, Peony may offer evidence to rebut Cell’s testimony regarding the
similarities between Scrappost and the companies cited to in Scrappost’s valuation summary.
Peony further argues that “Scrappost’s analysis ignores other factors which contributed to
the inability to obtain new subscribers or the loss of existing subscribers.” (Peony Br. at 17).
Again, Peony focuses on issues of fact. These arguments can be raised by Peony at trial.
For the foregoing reasons, the Court shall GRANT IN PART and DENY IN PART
Peony’s Motion for Summary Judgment. Peony’s motion is GRANTED to the extent that it
seeks dismissal of Scrappost’s Count I (Business Defamation), Count II (Injurious Falsehood),
and Count IV (Fraudulent Misrepresentation). Peony’s motion is DENIED to the extent that it
seeks dismissal of Scrappost’s Count III (Tortious Interference with Business Expectancy).
IT IS SO ORDERED.
s/Sean F. Cox
Sean F. Cox
United States District Judge
Dated: March 24, 2017
I hereby certify that a copy of the foregoing document was served upon counsel of record on
March 24, 2017, by electronic and/or ordinary mail.
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