Churchill Downs Incorporated v. NLR Entertainment, LLC et al

Filing 44

OPINION. Signed by Judge Kevin McNulty on 10/5/15. (cm )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
CHURCHILL DOWNS, INC.,
Plaintiff,

Civ. No. 14-03342 (KM) (MAH)

V.

OPINION
NLR ENTERTAINMENT, LLC AND
NICHOLAS L. RIBIS,
Defendants/Third-Party
Plaintiffs,
V.

WILLIAM CARSTANJEN,
Third-Party Defendant.

MCNULTY, U.S.D.J.,
The plaintiff, Churchill Downs, Inc. (“CDI”), has brought this action for
breach of contract and fraud against NLR Entertainment, LLC (“NLR”) and
NLR’s principal, Nicholas L. Ribis. The action arises from the breakdown of the
parties’ business relationship after NLR failed to acquire a casino in Atlantic
City, New Jersey, for which CDI was to provide online internet gambling
services. NLR and Ribis have asserted counterclaims against CDI for breach of
contract, breach of the implied covenant of good faith and fair dealing, and
defamation. NLR and Ribis have also brought a third-party claim of defamation
against CDI’s president and chief operating officer, William Carstanjen.
Now before the Court are the following motions. Carstanjen has moved to
dismiss NLR and Ribis’s Third-Party Complaint as procedurally improper under
Federal Rule of Civil Procedure 14(a), and also for failure to state a claim under
Rule 12(b) (6). CDI has moved for partial judgment on the pleadings under
Federal Rule of Civil Procedure 12(c). CDT’s motion seeks an immediate award

of $2.5 million in liquidated damages on Count 1 of the Complaint (breach of
contract), as well as dismissal of NLR and Ribis’s counterclaims.
For the reasons expressed below, the motions will be denied. The
allegations of the counterclaims and third-party claims, although quite thin,
are sufficient to merit further exploration in discovery. The Third-Party
Complaint, although improper under Rule 14(a), is properly brought under
Rules 13 and 20. CDT’s motion for judgment on Count 1 of its complaint will be
denied without prejudice as premature.
Although I am denying these motions, I write at some length to orient the
parties’ anticipated motions for summary judgment at the close of fact
discovery. Fact discovery, which was not stayed while these motions were
pending, appears to be close to completion. (See Dkt Nos. 40—43)
Background
A. License Agreement
In 2013, CDI and NLR began negotiating a business deal whereby CDI
would develop and maintain an online gaming service for the Showboat Atlantic
City Hotel and Casino in Atlantic City, New Jersey (“Showboat”). At the time,
NLR did not own Showboat, but was looking to acquire it from Caesars
Entertainment Corporation (“Caesars”). (Compi.’

¶J

8—10; 3PCC

¶

9) On

August 4, 2013, CDI and Ribis (on behalf of NLR), signed a binding term sheet,
and pursuant to that term sheet, CDI paid $2,500,000 to NLR. (Compl.
Answer

¶

11; 3PCC

¶

¶

11;

15) A month later, on September 4, 2013, Ribis (this time

on behalf of NLR’s wholly owned subsidiary, NLR Acquisitions, Inc.) entered
into a License and Operating Agreement (“License Agreement”) with Churchill

1

Citations to the record will be abbreviated as follows:
Compl.

=

Answer

=

3PCC

=

CDT’s Complaint, Dkt. No. 1-1

NLR’s Answer to CDI’s Complaint, Dkt. No. 11 at pp. 1—9
NLR’s Counterclaims and Third-Party Complaint, Dkt. No. 11 at pp. 9-19

2

Downs Interactive Gaming, LLC, a wholly-owned affiliate of CDI. (Compi.
Answer

¶

12; 3PCC

¶

¶

12;

16; see also Dkt. No. 20-1)

Under the terms of the License Agreement, CDI would operate as “the
exclusive vendor to Showboat of internet gaming and online gambling services
after the consummation of NLR’s acquisition of Showboat.” (License Agreement,
p. 1; 3PCC

¶J

17—18) NLR was obligated to “execute a definitive agreement to

acquire Showboat by October 15, 2013 and consummate the transactions
contemplated thereby by January 31, 201[4].”2 (Id.

§

3(i)) For its part, CDI was

to use best efforts to “launch” the online gaming system by April 2, 2014. (Id.

§

3(h)) The License Agreement also provides that “[o]n the first Business Day
following the date NLR enters into a definitive agreement to acquire Showboat
CDI shall deposit $7,500,000” into an escrow account as a “Rights Fee.” (Id.

§

10(e)(i)) That Rights Fee provision further states that “NLR is permitted to use

$1,000,000 of escrowed funds as a deposit... for the acquisition of Showboat.”
(Id.) If NLR failed to consummate the acquisition of Showboat by January 31,
2014, the License Agreement awarded CDI liquidated damages in the amount
of $2,500,000. (Id.

§

10(d)(i)) If CDI failed to launch the internet gaming system

by April 2, 2014, the License Agreement awarded NLR liquidated damages of
$10,000 per day until the gaming system is launched, unless the failure to
launch the system was due to the failure of one of the parties to obtain the
requisite gaming approvals. (Id.

§

10(d)(ii)) Finally, the License Agreement

specified that it would be governed under the laws of New Jersey. (Id.

§

19(a))

In the months after the License Agreement was signed, CDI took steps to
develop the online gaming system, including hiring 20 new engineers and
investing $10 million in intellectual property. (Compl.

¶

15) During this time,

Ribis assured CDI that a deal to acquire Showboat from Caesars was close to
closing. (Compl.

¶J

16, 18, 20) However, NLR did not execute a definitive

agreement to acquire Showboat by October 15, 2013. (Compl.

¶

17) In

The parties do not seem to dispute that the License Agreement’s reference to
“January 31, 2013” is a typographical error.
2

3

December 2013, Ribis informed CDI that he was ready to sign an asset
purchase agreement for Showboat and emailed CDI a draft press release
relating to the sale. (Compl.

¶

25; 3PCC

¶

24) Ribis requested that CDI place

$7.5 million in escrow to assist him in the acquisition of Showboat, but CDI
refused. (Compi.

¶J

25—26; 3PCC

¶

25) In early January 2014, CDI learned

that Caesars was no longer in negotiations to sell Showboat to NLR. (Compl.

¶

28) Ribis and NLR did not, as provided by the License Agreement, consummate
the Showboat acquisition by January 31, 2014, or indeed at any time. (Compi.

¶

33; 3PCC

¶

27) In short, the deal between CDI and NLR broke down.

On May 13, 2014, CDI announced a partnership agreement with
Saratoga Casino & Raceway (“Saratoga”) to build a casino in New York. (3PCC

¶

29) At some point, Carstanjen called Ribis a “fraud and a thief who could not
be trusted.” (Id.

¶

32)

B. Procedural History
On February 3, 2014, CDI filed in Kentucky state court a complaint
alleging causes of action for breach of contract and fraud and seeking the
return of the $2.5 million down payment. (Dkt. No. 1

¶

1) On February 25,

2014, NLR and Ribis removed the action to the United States District Court for
the Western District of Kentucky on the basis of diversity jurisdiction. (Id.)
NLR and Ribis then moved to dismiss the complaint for lack of personal
jurisdiction or, in the alternative, to transfer venue to the United States District
Court for the District of New Jersey. (Dkt. No. 6) The motion to dismiss was
denied, but the action was transferred to this court on May 27, 2014. (Dkt. No.
9) On May 30, 2014, NLR and Ribis then answered the complaint, asserted
counterclaims against CDI, and filed a Third-Party Complaint against
Carstanjen. (Dkt. No. 11) CDI answered the counterclaims on July 7, 2014.
(Dkt. No. 20) On July 25, 2014, Carstanjen filed a motion to dismiss the Third
Party Complaint. (Dkt. No. 22) CDI filed its motion for partial judgment on the
pleadings on August 8, 2014. (Dkt. No. 24)

4

DISCUSSION
The Answer of NLR and Ribis contains Counterclaims (against plaintiff
CDI) and a Third-Party Complaint (against Carstanjen). Counts One and Two
(breach of contract and breach of the covenant of good faith and fair dealing)
are asserted only as counterclaims against CDI. I discuss CDI’s Rule 12(c)
motion

dismiss

to

Counts

One

and Two

in

section A.

Count

Three

(Defamation/Trade Libel/Slander) is asserted both as a counterclaim against
CDI and as a third-party claim against Carstanjen. I discuss the motions of
3
CDI and Carstanjen to dismiss Count Three in section B. Finally, CDI moves
for entry of judgment on the pleadings in the amount of $2.5 million on its
claim of breach of contract (Count 1 of the complaint). I discuss that motion in
section C.
A. Rule 12(c) Motion for Judgment on the Pleadings—Counts One
and Two of the Counterclaim
i.

Legal standard

As to Counts One and Two of the Counterclaim, CDI (as counterclaim
defendant) moves for judgment on the pleadings under Federal Rule of Civil
Procedure Rule 12(c). For these purposes, a Rule 12(c) motion is
indistinguishable from a motion to dismiss. Federal Rule of Civil Procedure
12(h) (2) “provides that a defense of failure to state a claim upon which relief
can be granted may also be made by a motion for judgment on the pleadings.”
Turbe v. Gov’t of Virgin Islands, 938 F.2d 427, 428 (3d Cir. 1991). Accordingly,
when a Rule 12(c) motion asserts that the complaint fails to state a claim, the
familiar Rule 12(b)(6) standard applies. Id.
Rule 12(b)(6) provides for the dismissal of a complaint, in whole or in
part, if it fails to state a claim upon which relief can be granted. The defendant,
as the moving party, bears the burden of showing that no claim has been
Herein, Counts One, Two, and Three refer, not to the Complaint, but to the
combined Counterclaim/Third-Party Complaint (Dkt. No. 11 at pp. 9—19), unless
otherwise specified.

3

5

stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). In deciding a
Rule 12(b)(6) motion, a court must take the allegations of the complaint as true
and draw reasonable inferences in the light most favorable to the plaintiff.
Phillips v. Cnty. of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008) (traditional

“reasonable inferences” principle not undermined by Twombly, see infra).
Federal Rule of Civil Procedure 8(a) does not require that a complaint
contain detailed factual allegations. Nevertheless, “a plaintiff’s obligation to
provide the grounds of his entitlement to relief requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, the
complaints factual allegations must be sufficient to raise a plaintiff’s right to
relief above a speculative level, so that a claim is “plausible on its face.” Id. at
570; see also Umland v. PLANCO Fin. Servs., Inc., 542 F.3d 59, 64 (3d Cir.

2008). That facial-plausibility standard is met “when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662,
678 (2009) (citing Twombly, 550 U.S. at 556). While “[t]he plausibility standard
is not akin to a ‘probability requirement’

...

it asks for more than a sheer

possibility.” Iqbal, 556 U.S. at 678.
In deciding a motion to dismiss, or for a similar judgment on the
pleadings, the court can consider documents integral to or explicitly relied
upon in the pleadings. See In re Burlington Coat Factory Sec. Lit., 114 F.3d

1410, 1426 (3d Cir. 1997); Pryor v. Nat’l Collegiate Athletic Ass’n, 288 F.3d 548,
560 (3d Cir. 2003) (“[Dlocuments whose contents are alleged in the complaint
and whose authenticity no party questions, but which are not physically
attached to the pleading, may be considered.”)
ii.

Breach of contract, breach of implied covenant of good
faith and fair dealing

To plead a claim for breach of contract under New Jersey law, a party
must allege (1) the existence of a contract; (2) that the contract was breached;
(3) that the breach resulted in damages. See Danish LLC v. Macy’s Inc., 2012
6

WL 2576358, at *2 (D.N.J. July 3, 2012). Also sometimes identified as an
essential element is (4) that the party suing for breach performed its own
contractual duties. Id. To satisfy Rule 8(a), a complaint must identify the
portions of the contract that were allegedly breached. See Faisti v. Energy Plus
Holdings, LLC, 2012 WL 3835815, at *78 (D.N.J. Sept. 4, 2012).
Breach of the explicit terms of a contract, however, is not the only kind of
breach. A covenant of good faith and fair dealing is implied in every contract in
New Jersey. See Sons of Thunder, Inc. v. Borden, Inc., 690 A.2d 575, 587 (N.J.
1997). A party may breach that implied covenant even when its actions do not
violate a pertinent express term. Id. New Jersey has recognized an independent
cause of action for breach of the implied covenant in three situations: “(1) to
allow the inclusion of additional terms and conditions not expressly set forth in
the contract, but consistent with the parties’ contractual expectations; (2) to
allow redress for a contracting party’s bad-faith performance of an agreement,
when it is a pretext for the exercise of a contractual right to terminate, even
where the defendant has not breached any express term; and (3) to rectify a
party’s unfair exercise of discretion regarding its contract performance.” Berlin
Med. Assocs., P.A. v. CMI N.J. Operating Corp., 2006 WL 2162435, at *9 (N.J.
Super. Ct. App. Div. Aug. 3, 2006) (affirming dismissal of good faith and fair
dealing claim as redundant of breach of contract claim where no facts
suggested a pretext). A cause of action may lie where “the other party has acted
consistent with the contract’s literal terms, but has done so in such a manner
so as to have the effect of destroying or injuring the right of the other party to
receive the fruits of the contract.” Wade v. Kessler Inst., 798 A.2d 1251, 1262
(N.J. 2002). “[Plroof of bad motive or intention is vital to an action for breach of
the covenant.” Westmont Dev. Grp., LLC v. Twp. of Haddon, 625 F. Supp. 2d
178, 195 (D.N.J. 2009) (citing Brunswick Hills Racquet Club, Inc. v. Route 18
Shopping Ctr. Assocs., 864 A.2d 387, 396 (N.J. 2005)).
There is no dispute in the pleadings that CDI and NLR entered into a
binding term sheet on August 4, 2013. (Compl.

7

¶

11; Answer

¶

11; 3PCC

¶

15)

The parties do not dispute that pursuant to that term sheet, CDI paid $2.5
million to NLR. (Compi.

¶

11; 3PCC

¶

15) Similarly, the parties do not dispute

that CDI and NLR signed the License Agreement on September 4, 2013.
(Compl.

¶

12; Answer

¶

12; 3PCC

¶

16) Nor is there disagreement as to the

purpose of the License Agreement, which was for CDI to develop an internet
gaming and online gambling system for use at the Showboat casino, once
Showboat was acquired by NLR. (Compl.

¶

11; 3PCC

¶

17)

There is no doubt that NLR was obligated to “execute a definitive
agreement to acquire Showboat by October 15, 2013 and consummate the
transactions contemplated thereby by January 31, 201 [4].” (License Agreement
§3(i)) CDI was to use its best efforts to go live with the online gaming system
within about two months of that acquisition, i.e., by April 2, 2014. (Id.

§

3(h))

The License Agreement also provides that on the business day following NLR’s
entrance into a “definitive agreement to acquire Showboat,” the parties shall
enter into an agreement to establish an escrow account wherein CDI will
deposit $7,500,000. (Id.

§

10(e)(i)) Of that amount, “NLR is permitted to use

$1,000,000 of escrowed funds as a deposit. for the acquisition of Showboat.”
. .

(Id.)
The real dispute here is over which party breached first. CDI contends
that NLR breached the License Agreement by failing to acquire the Showboat
by January 31, 2014, and that CDI was therefore excused from further
performance and is entitled to recover its $2.5 million down payment. NLR, by
way of counterclaim and defense, alleges that it was CDI who breached the
License Agreement by failing to provide the $7.5 million NLR needed to
purchase the Showboat and by failing to launch the gaming platform by April
2, 2014. NLR further counterclaims that CDT’s failure to cooperate was bad
faith conduct that defeated the purpose of the agreement and breached the
implied covenant of good faith and fair dealing.
There is no dispute that NLR failed to execute a written agreement to
acquire Showboat by October 15, 2013, and it failed to consummate the
acquisition of Showboat by January 31, 2014. There is similarly no dispute
8

that CDI failed to place $7.5 million in escrow and failed to launch the gaming
platform by April 2, 2014.
Were these material breaches of contract? A breach is material when it
goes to “the essence of the contract.” Neptune Research & Dev., Inc. v. Teknics
Indus. Sys., Inc., 563 A.2d 465, 470 (N.J. Super. Ct. App. Div. 1989). “[Al
material breach by either party to a bilateral contract excuses the other party
from rendering any further contractual performance.” Magnet Res., Inc. v.
Summit MRJ, Inc., 723 A.2d 976, 981 (N.J. Super. Ct. App. Div. 1998).
NLR’s failure to reach a definitive agreement by October 15, 2013, and to
acquire Showboat by January 31, 2014, would go to the heart of the License
Agreement. The License Agreement, which was intended to govern the
relationship between CDI and NLR, provides that CDI will operate as “the
exclusive vendor to Showboat of internet gaming and online gambling services
after the consummation of NLR’s acquisition of Showboat.” (License Agreement,
Whereas Cl. No. 3, p.1) (emphasis added). The acquisition of Showboat by NLR
was integral to the agreement between the parties: CDI’s agreement with NLR
to provide online gaming services for Showboat meant nothing unless NLR
acquired Showboat. That proposition seems obvious enough, but it is also
continually reaffirmed in the express terms of the License Agreement.
CDI, for its part, was obligated to develop the online gaming system while
NLR was negotiating and signing an acquisition deal for Showboat. (See Compl.

¶ 15.)

All of the rest of CDI’s performance—e.g., installing and operating the

online gaming systems—was to take place after NLR acquired Showboat. In
short, the very essence of the License Agreement was the provision of internet
gaming systems specifically for use at Showboat. Without Showboat, there was
no casino to which CDI could provide the agreed-upon gaming services. The
failure by NLR to acquire Showboat, then—if proven, and

f not excused by,

e.g., a breach by CDI—would constitute a fundamental and material breach.
And such a material breach might well excuse CDI from its responsibility to
launch the online gaming system by April 2, 2014.

9

But wait a minute, says NLR; it was only CDT’s breach of the License
Agreement or failure to deal in good faith that prevented NLR from
consummating the acquisition. CDI, says NLR, was obligated to place the $7.5
million “Rights Fee” in escrow, and the absence of that money caused the
acquisition deal to break down. (3PCC

¶

37) So CDI, not NLR, is guilty of

breach, according to Counts One and Two of the counterclaim.
NLR, it must be said, breezes past some important contractual language.
The License Agreement did not simply require CDI to pay $7.5 million to NLR
for the purpose of acquiring Showboat. Rather, the Rights Fee provision states
that on the first business day after NLR had entered into a definitive agreement
to acquire Showboat, CDI would place $7.5 million in an escrow account. NLR
was permitted to use only $1 million of that money as a deposit for the
acquisition of Showboat. (License Agreement

§

10(e)(i)). The remaining $6.5

4
million would not be released until after the acquisition was consummated.
As for breach of the express terms of the contract, a “definitive
agreement” with Caesars to acquire Showboat was the trigger—the condition
precedent—for CDT’s obligation to place $7.5 million into escrow. A “definitive
agreement” is not itself a defined term. NLR alleges that in December 2013 (not
October, as agreed) Ribis “advised” CDI that he was “prepared” to enter into
NLR was obligated to “execute a definitive agreement to acquire Showboat by
October 15, 2013 and consummate the transactions contemplated thereby by January
31, 201[4].” (Id. § 3(i))
The Rights Fee provision, which keys to those two obligations, reads as follows:
i. On the first Business Day following the date NLR enters into a definitive
agreement to acquire Showboat, (A) the parties shall enter into an escrow
agreement for the establishment of an escrow account, and (B) CDI shall
deposit $7,500,000 (the “Escrow Amount”) into the escrow account established
by such agreement to secure the obligations of CDI to NLR pursuant to Section
10.e.ii. NLR is permitted to use $1,000,000 of escrowed funds as a deposit as
provided for in that certain definitive purchase agreement for the acquisition of
Showboat.
ii. On the first Business Day following the date NLR consummates the acquisition
of Showboat, the Parties shall execute a joint instruction to the Escrow Agent
to release the Escrow Amount to NLR
...

Id. § 10(e)(i) & (ii).
10

such an agreement, and sent CDI a “draft press release” announcing it. (3PCC
¶24) Not the same thing. (And the parties have not explored the issue of
whether the October deadline was essential.) But as an allegation, this is barely
sufficient to withstand a motion and warrant discovery of the circumstances
surrounding whatever agreement had been reached.
Relatedly, NLR alleges that CDI’s actions, even if they did not breach the
literal terms of the License Agreement, breached the implied covenant of good
faith and fair dealing, and unfairly deprived NLR of the benefits of the contract.
The crux of that allegation appears to be that CDI lacked the ability and
intent to perform, but merely used NLR and Ribis to gain an entrée to the
casino industry. CDI knew, NLR alleges, that the posting of the $7.5 million
was a precondition to the imminent Showboat deal. C Dl’s refusal to place the
$7.5 million in escrow, says NLR, (a) masked CDT’s inability to supply the
goods and services contracted for (“CDI completely and utterly lacked the
technical capabilities to carry out those responsibilities identified in Article 3.”
(3PCC

¶

19)); and (b) actually resulted from CDI’s decision to negotiate another

partnership agreement with Saratoga Casino & Raceway (3PCC

¶

28—30).

Again, these allegations are factually very thin. I nevertheless think they are
sufficient to permit the case to go forward, so that the issues can be explored
on a motion for summary judgment.
I will therefore deny CDI’s motion for judgment on the pleadings
dismissing Count One (breach of contract) and Count Two (breach of the
implied covenant of good faith and fair dealing) of NLR’s Counterclaim.
B. Motions of CDI and Carstanjen to Dismiss Counterclaim/Third
Party Claim Count Three (Defamation/Trade Libel/Slanderl
In Count Three, NLR and Ribis bring a claim of “defamation/trade
libel/slander” as a third-party claim against Carstanjen and as a counterclaim
against CDI. Carstanjen is alleged to have uttered defamatory falsehoods in his

ii

capacity as president and chief operating officer of CDI. Both Carstanjen and
CDI seek to dismiss Count Three.

1.

Rule 14(a)

-

Carstanjen

Before considering the merits of the defamation claims, I must deal with
a threshold procedural issue. Carstanjen moves to dismiss the Third-Party
Complaint on the grounds that it is procedurally improper under Federal Rule
of Civil Procedure 14(a). (Dkt. No. 22 p. 5_7)5 That is correct as far as it goes,
but I will nevertheless deny the motion because I find that joinder would be
appropriate under Federal Rule of Civil Procedure 20, made applicable via Rule
13(h).
Rule 14(a) provides that a defendant “may, as a third-party plaintiff,
serve a summons and complaint on a nonparty who is or may be liable to it for
all or part of the claim against it.” Fed. R. Civ. P. 14(a)(1). A claim can be
asserted under that rule only “when the third party’s liability is in some way
dependent on the outcome of the main claim or when the third party is
secondarily liable to [the] defendant.” Wright & Miller, Fed. Prac. & Proc.

§

1446. To properly invoke Rule 14(a), then, a third-party plaintiff must set forth
a claim of secondary liability under a theory of indemnification, contribution, or
other theory of derivative liability. See Owen Equz. & Erection Co. v. Kroger,
437 U.S. 365, 376 (1978) (“A third-party complaint depends at least in part
upon the resolution of the primary lawsuit.”); see also Fed. Deposit Ins. Corp. v.
Bathgate, Ii 27 F.3d 850, 873 (3d Cir. 1994); Wright & Miller, Fed. Prac. &
5
Carstanjen’s motion is styled as a Rule 12(b)(1) motion to dismiss for lack of
jurisdiction. Subject matter jurisdiction, however, is a separate question. Rule 14(a)—
like all of the federal rules—is not jurisdictional, but procedural. See Fed. R. Civ. P. 82
(“These [Federal Rules of Civil Procedure] do not extend or limit the jurisdiction of the
district courts or the venue of actions in those courts.”); see also 6 Charles Alan
Wright & Arthur R. Mifier, Federal Practice & Procedure 2d § 1446 (2007) [hereinafter
Wright & Miller, Fed. Prac. & Proc.]. The Counterclaim/Third-Party Complaint alleges,
though not very specifically, that jurisdiction over the Third-Party Complaint rests on
diversity. (3PCC ¶5; see 28 U.S.C. § 1332.) Should discovery disclose that the parties’
citizenship is not diverse or that the amount in controversy does not exceed $75,000,
the parties shall immediately bring those facts to the Court’s attention.

12

Proc.

§ 1446 (noting that the test for joinder under Rule 14(a) is not

transactional and does not depend on the same set of facts being relevant to
the original and third-party claims; rather, joinder requires derivative or
secondary liability).
Here, NLR’s claim against Carstanjen is not premised on theories of
secondary liability. The original complaint asserts causes of action against NLR
for breach of the License Agreement and fraud. NLR’s claim against Carstanjen
is for defamation and trade libel. NLR is asserting an independent tort against
Carstanjen, not seeking indemnification or contribution. It is not alleged, for
example, that if NLR is liable to CDI for breach of contract or fraud, it may pass
along that liability to Carstanjen. Rule 14(a), then, is not a proper basis for
adding to this action a defamation claim against Carstanjen.
I nevertheless find that the claim against Carstanjen is properly in this
action. No one disputes that the defamation claim is permissibly pled as a
counterclaim against CDI. See Fed. R. Civ. p. 13(a), (b). And that counterclaim
provides a basis for adding this parallel (indeed, identical) defamation claim
against Carstanjen.
Federal Rule of Civil Procedure 13(h) provides that “Rules 19 and 20
govern the addition of a person as a party to a counterclaim or crossclaim.” The
naming of Carstanjen in Count Three may be viewed as precisely that: the
addition of a person as a party to a counterclaim. So viewed, this is, at a
6
minimum, a case of permissive joinder under Rule 20, Fed. R. Civ. P. Rule
20(a)(2) states
may be joined in one action as
(2) Defendants. Persons
defendants if:
(A) any right to relief is asserted against them jointly, severally, or
in the alternative with respect to or arising out of the same
transaction, occurrence, or series of transactions or occurrences;
and
(B) any question of law or fact common to all defendants will arise
in the action.
...

That being the case, I do not consider whether it is required to be joined under
Rule 19.

6

13

Rule 13(h) means that the party joinder rules, Rules 19 and 20, apply to
a counterclaim the same way that they apply to a complaint. Here, NLR,
(counterclaim) plaintiff, asserts Count Three, a defamation claim, against CDI,
(counterclaim) defendant. Count Three is asserted against Carstanjen as well.
Indeed, Carstanjen is alleged to have uttered the defamatory statements in his
capacity as president and COO of CDI. Clearly, any right to relief is “asserted
against [Carstanjen and CDII jointly, severally, or in the alternative” with
respect to the same alleged acts of defamation. Likewise, the defamation claims
against these two are certain to involve common “question[s] of law or fact.”
Fed. R. Civ. P. 20(a)(2).
In short, the defamation claim against Carstanjen is properly joined to
this action under Rules 13(h) and 20(a)(2). Carstanjen’s motion to dismiss it on
Rule 14 grounds is denied.

2.

Failure to state a claim (defamation/trade libell

Both CDI and Carstanjen move to dismiss Count Three for failure to
state a claim—CDT, which has answered, seeks dismissal under Rule 12(c), and
Carstanjen under Rule 12(b)(6). As discussed above, the standards for
dismissal under those rules are identical. (See pp. 5—6, supra.) Count Three is
denoted as Defamation/Trade Libel/Slander.” (3PCC p. 17) Written and oral
defamation, as well as trade libel, are largely parallel for present purposes.
In order to state a claim for defamation under New Jersey law, “a plaintiff
must show that the defendant (1) made a false and defamatory statement
concerning the plaintiff, (2) communicated the statement to a third party, and
(3) had a sufficient degree of fault.” Mangan v. Corp. Synergies Grp., Inc., 834 F.
Supp. 2d 199, 204 (D.N.J. 201 1).7 Trade libel, a somewhat amorphous
designation, encompasses defamation especially directed to the plaintiff’s trade
or business. See Patel v. Soriano, 848 A.2d 803, 834 (N.J. Super. Ct. App. Div.
Although New Jersey imposes a heightened pleading standard whereby a
claimant must allege the specific defamatory words used, in this Court the ordinary
federal pleading standard applies. Mangan, 834 F. Supp. 2d at 204 (noting that a
plaintiff “must allege the elements of defamation as applied by New Jersey law to a
degree of sufficient specificity to satisfy the standards outlined in Rule 8.”)

7

14

2004) (discussion of the contours of the tort). To make out a trade libel claim, a
plaintiff must establish “(1) publication; (2) with malice; (3) of false allegations
concerning its property, product or business; and (4) special damages, i.e.,
pecuniary harm.” Mayflower Transit, LLC v. Prince, 314 F. Supp. 2d 362, 378
(D.N.J. 2004).
Whether a statement is defamatory is fact-specific: it requires an analysis
of “( 1) the content, (2) the verifiability, and (3) the context” of the allegedly
defamatory statement. Leang v. Jersey City Bd. Of Educ., 969 A.2d 1097, 1113
(N.J. 2009). Factual statements are those capable of verification, i.e., proof of
truth or falsity in relation to external realities; opinion statements are not
capable of such verification because they reflect only one’s state of mind. See
Ward v. Zelikovsky, 643 A.2d 972, 979 (N.J. 1994). New Jersey also recognizes
a distinction “between genuinely defamatory communications as opposed to
obscenities, vulgarities, insults, epithets, name-calling, and other verbal
abuse.” Id. Only where the allegedly defamatory statements imply reasonably
specific assertions of fact will the claim be allowed to proceed. See id.
Count Three alleges that Carstanjen called Ribis a “fraud” and a “thief,”
and said that he was “untrustworthy.” (3PCC

¶

48) Such statements are

potentially defamatory. Such accusations—particularly, as here, in the context
of identified business dealings—might be susceptible of verification or
falsification, and might reflect on Ribis’s business. Alternatively, of course, the
context might reveal that such statements, if they occurred, were nothing more
than name-calling. See Glass v. Snelibaker, 2007 WL 1723472, at *9 (D.N.J.
June 14, 2007). I will, however, allow the parties to develop that factual
context.
To adequately allege the communication or publication element, a
plaintiff should “plead facts sufficient to identify the defamer and the
circumstances of publication.” Mangan, 834 F. Supp. 2d at 204 (citing Printing
Mart-Morristown v. Sharp Elecs. Corp., 563 A.2d 31, 46 (N.J. 1989)). Count
Three names Carstanjen as the defamer, but is vague as to the who, when, and

15

where of publication. To survive summary judgment, far more will be required.
A federal complaint, however, need not set forth the names of the specific
individuals to whom the allegedly defamatory statements were made. See
*4 (D.N.J. June 10,
DiAntonio v. Vanguard Funding LLC, 2015 WL 3629539, at
2015) (sufficient to allege that named individuals, in a particular 6-month
period, made the slanderous statement to high officials of plaintiff’s new
employer, and that he was forced to defend himself as a result); DeFalco v. N.J.
Semi-Conductor Prods., Inc., 2012 WL 161801, at *3 (D.N.J. Jan. 19, 2012)
(finding communication element established where defamatory statements were
made via telephone call to prospective employers). All that is alleged in this
Third-Party Complaint is that the allegedly defamatory statements were made
to “third parties in the casino industry.” (3PCC

¶

48) Like the complaints in

DiAntonio and DeFalco, this generically defines a class of persons who heard
the defamatory statement. The “casino industry” is rather nebulous, but I will
permit the claim to go forward so that the particulars—if they exist—may be
developed in discovery.
The third element of defamation is a sufficient degree of fault.
Defamation requires a showing of actual malice where the victim is a public
figure and negligence for a private figure. See New York Times Co. v. Sullivan,
376 U.S. 254, 279—80 (1964); Costello v. Ocean Cnty. Observer, 643 A.2d 1012,
1021 (N.J. 1994). Ribis is a private figure and the negligence standard would
apply. As for trade libel, however, the standard is malice: i.e., that the
defendant knew that the statements were false or made the statements “with
reckless disregard for their falsity.” Pactiv Corp. v. Perk-Up, Inc., 2009 WL
2568105, at *10 (D.N.J. Aug. 18, 2009) (citing Floorgraphics, Inc. v. New Am.
Marketing In-Store Servs., Inc., 2006 WL 2846268, at *6 (D.N.J. Sept. 29,
2006)); see also Restatement (Second) of Torts

§

623A Section d (1977).

Here, as elsewhere, Count Three makes a threadbare and generic
allegation: “Carstanjen was motivated by actual malice, either knew these
statements were false or recklessly disregarded their falsity, and otherwise

16

acted negligently in making these statements.” (3PCC

¶ 49). I am mindful,

however, that a party’s state of mind often cannot be demonstrated directly; for
that reason, even as to the heightened pleading requirements for fraud (not
applicable here), “[m]alice, intent, knowledge, and other conditions of a
person’s mind may be alleged generally.” Fed. R. Civ. P. 9(b).
The pleadings set forth a factual context in which the parties had
significant face-to-face business dealings. From such allegations, it is possible
to extract an allegation that Carstanjen knew or should have known the true
facts. Accordingly, an accusation of dishonesty, if false, might be found to be
negligent or reckless, depending on the context.
Finally, I discuss the element of damages. General defamation does not
have a special or particularized damages element. Slander and trade libel,
8
however, may require a showing of special damages: proof of items such as
“the loss of particular customers by name, or a general diminution in its
business and extrinsic facts showing that such special damages were the
natural and direct result of the false publication.” Juliano v. ITT Corp., 1991 WL
10023, at *6 (D.N.J. Jan. 22, 1991); Bocobo v. Radiology Consultants of South

Jersey, P.A., 477 F. App’x 890, 901 (3d Cir. 2012) (upholding summary
judgment for defendants on trade libel clalm for lack of showing of damages);
Arista Records, Inc. v. Flea World, Inc., 356 F. Supp. 2d 411, 428 (D.N.J. 1995)

(finding allegations that defendants were “damaged” and that statements
“curtail[ed] legitimate business” were insufficient).
Count Three alleges that “NLR has suffered damages,” that the
statements “devastat[ed]” and “tended to blacken and injure” Ribis’s
reputation, and that they “damage[d] his business.” As a result, Ribis himself
allegedly suffered “damages, including extreme mental anguish and distress.”
(3PCC ¶J50-52) Once again, these allegations are quite thin, and far more will
be required at the summary judgment stage. But I find these allegations of
damages adequate to sustain the Count for the time being.
I do not undertake here to discuss the current state of slander per se and the
complexities of special and presumed damages.

8

17

Accordingly, the Rule 12(b) (6) and 12(c) motions to dismiss Count Three
of the Counterclaim/Third-Party Complaint for failure to state a claim are
denied.

C.

CDI’s Rule 12(c) Motion for $2.5 Million Judgment

Finally, I turn to CDT’s Rule 12(c) motion which, based on the pleadings
alone, requests that the Court enter judgment for $2.5 million on Count I of
the complaint (breach of contract).
This kind of motion—we might deem it an “offensive Rule 12(c) motion”—
is not akin to a motion to dismiss. Compare pp. 5—6, supra. Rather, it
resembles a plaintiff’s motion for summary judgment in advance of discovery.
The premise of such a motion is that the answer has admitted or failed to deny
the essential facts, and that the plaintiff is entitled to judgment as a matter of
law. See Hayes v. Cmty. Gen. Osteopathic Hosp., 940 F.2d 54, 56 (3d Cir. 1991)
(citing 5A Wright & Miller, Fed. Prac. & Proc.

§ 1368, at 519 (2d ed. 1990)).

Such a motion, a relic of the common-law pleading era, is of limited use today.
Id. It would be an unusual case where the admissions of the answer disposed
of the merits, leaving nothing for discovery.
CDI, it is true, has adequately pled the existence of the License
Agreement, a breach by NLR, and damages. The License Agreement provides
for liquidated damages of $2.5 million if NLR fails to consummate the
acquisition of Showboat by January 31, 2014. (License Agreement

§ 10(d)(i))

The issue of CDI’s entitlement to judgment, however, is tied up with the
issues raised by the Counterclaim: essentially, whether CDT’s breach of the
agreement would excuse NLR’s failure to perform. And even if I granted CDI’s
12(c) motion to dismiss that counterclaim, I would necessarily do so without
prejudice to the submission of an amended pleading. See Aiston v. Parker, 363
F.3d 229, 235 (3d Cir. 2004) (where a complaint is dismissed on Rule 12(b)(6)
grounds, “a District Court must permit a curative amendment, unless an
amendment would be inequitable or futile”). So any judgment “on the

18

pleadings” would be a contingent one, subject to vitiation by an amended
pleading that put the issue of breach back in play.
I therefore deny CDI’s Rule 12(c) motion for judgment on the pleadings
on Count I of CDT’s complaint.
CONCLUSION
For the reasons stated above, Third-Party Defendant Carstanj en’s motion
to dismiss the Third-Party Complaint under Federal Rules of Civil Procedure
12(b)(1) and 12(b)(6) is DENIED. CDT’s motion for judgment on the pleadings
under Federal Rule of Civil Procedure 12(c) is likewise DENIED.

/UU,J
K yIN MCNULTY, U.S.D.
Date: October 5, 2015

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