RECKITT BENCKISER LLC v. COTIVITI, LLC et al
OPINION. Signed by Judge Kevin McNulty on 10/3/2016. (JB, )
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
Civ. No. 16-729 (KM)
RECKfl’T BENCKISER LLC,
COTIVITI, LLC and COST &
COMPLIANCE ASSOCIATES, LLC,
The plaintiff, Reckitt Benckiser LLC, engaged Connolly, a division of
defendant Cotiviti, LLC, and defendant Cost & Compliance Associates, LLC
(“CCA”), to provide recovery audit services, i.e., to identify and recover
overpayments to vendors. Reckitt brought this action alleging that Cotiviti and
CCA breached the parties’ agreements and committed fraud. This matter comes
before the Court upon the motions of Cotiviti (ECF no. 18) and CCA (ECF no.
19) under Fed. R. Civ. P. 12(b)(6) to dismiss the complaint for failure to state a
claim upon which relief can be granted. For the reasons stated herein, the
motions to dismiss will be granted as to the fraud claims, and denied as to the
I summarize the allegations of the Complaint, which are accepted as true
for purposes of these motions only.
Reckitt manufactures and distributes consumer health, hygiene, and
home products. (Complaint, ECF no. 1-1 (“Cplt.”)
13—14) In 2004, Reckitt
entered into an agreement with Connolly, which is now a division of defendant
Cotiviti. Connolly agreed to provide audit services to determine whether Reckitt
was entitled to recover rebates or overpayments from its vendors. (Cplt.
Under the agreement, Connolly would audit invoices and disbursements. It
would identify overpayments, submit claims to Reckitt for processing, and
prepare claim letters for Reckitt to send to the relevant vendors. (Cplt. ¶11 19—
20) Connolly was entitled to a contingency fee based on a percentage of
amounts recovered. (Cplt.
21) On February 14, 2013, Connolly assigned the
agreement to a newly created entity, CCA. (Cplt.
Reckitt discovered that Connolly/CCA had been claiming commissions
for recoveries that were not obtained as a result of their audits. For example,
Connolly took a commission of $245,000 for approximately $700,000 in
rebates that Reckitt had independently obtained by contract with the vendor.
28) Another vendor submitted a credit memo to Reckitt on February
15, 2011, but later, on April 14, 2011, Connolly submitted a $102,837.41
claim for recovery. (Cplt.
29) Other claims were not properly documented.
Reckitt’s review has resulted in a determination that a significant number of
payments obtained by Defendants were unwarranted under the terms of the
Defendants, in violation of the Agreement, allegedly violated Reckitt’s
rules regarding “safety of persons and property” by establishing an improper
relationship with a Reckitt employee who had control of relevant financial
information. (Cplt. ¶j 33—34) One of Defendants’ agents, Bierman, was
“frequently abusive” in his contacts with vendors and falsely represented
himself to be an employee of Reckitt.
The Complaint alleges five causes of action:
Count I: Breach of Contract Against Cotiviti. This count is based on
Connolly’s receipt of fees to which it allegedly was not entitled.
Count II: Breach of Contract Against CCA. This count is based on similar
allegations postdating the assignment of the agreement to CCA.
Count III: Breach of the Covenant of Good Faith and Fair Dealing Against
Cotiviti and CCA. This count alleges that the receipt of unwarranted
commissions was in bad faith.
Count IV: Common Law Fraud. This count essentially alleges that
Defendants made false representations that they had identified recoveries,
when in fact the overpayments had been identified by Reckitt.
Count V: New Jersey Consumer Fraud Act (“NJCFA”), N.J. Stat. Ann.
56:8-1 et seq. This count alleges that the conduct alleged against Defendants
constituted an unconscionable commercial practice and deception in
connection with the sale of merchandise.
Defendants have moved to dismiss the complaint. Fed. R. Civ. P. 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 moving party bears the burden of
showing that no claim has been stated. Hedges v. United States, 404 F.3d 744,
750 (3d Cir. 2005). In deciding a motion to dismiss, a court must take all
allegations in the complaint as true and view them in the light most favorable
to the plaintiff. See Warth v. Seldin, 422 U.S. 490, 501 (1975); Trump Hotels &
Casino Resorts, Inc. v. Mirage Resorts Inc., 140 F.3d 478, 483 (3d Cir. 1998);
see also Phillips v. County of Allegheny, 515 F.3d 224, 231 (3d Cir. 2008)
(“reasonable inferences” principle not undermined by later Supreme Court
Twombly case, infra).
Fed. R. Civ. P. 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 formulaic recitation of the elements of a cause of action will
not do.” Bell Ati. Corp. v. Twombly, 550 U.S. 544, 555 (2007). Thus, the factual
allegations must be sufficient to raise a plaintiff’s right to relief above a
speculative level, such that it is “plausible on its face.” See id. at 570; see also
Umland v. PLANCO Fin. Serv., Inc., 542 F.3d 59, 64 (3d Cir. 2008). A claim has
“facial plausibility when the plaintiff pleads factual content that allows the
court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing
Twombly, 550 U.S. at 556). While “Lt]he plausibility standard is not akin to a
it asks for more than a sheer possibility.” Iqbal, 556
U.S. at 678 (2009).
For claims of fraud, Rule 9(b) imposes a heightened pleading standard,
over and above that of Rule 8(a). Specifically, it requires that “in all averments
of fraud or mistake, the circumstances constituting the fraud or mistake shall
be stated with particularity.” Fed. R. Civ. P. 9(b). That heightened standard
requires the plaintiff to “state the circumstances of the alleged fraud with
sufficient particularity to place the defendant on notice of the precise
misconduct with which it is charged.” Frederico v. Home Depot, 507 F.3d 188,
200 (3d Cir. 2007) (internal quotation and citation omitted). “Malice, intent,
knowledge, and other conditions of a person’s mind,” however, “may be alleged
generally.” Fed. R. Civ. P. 9(b).
In general, Rule 9(b) requires that a complaint allege the “who, what,
when, where and how of the events at issue.” In re Suprema Specialties, Inc.
Sec. Litig., 438 F.3d 256, 276—77 (3d Cir. 2006). The standard of sufficiency,
however, must be applied with sensitivity to the context:
[Plaintiffs] need not, however, plead the “date, place or time” of the
fraud, so long as they use an “alternative means of injecting
precision and some measure of substantiation into their
allegations of fraud.” The purpose of Rule 9(b) is to provide notice
of the “precise misconduct” with which defendants are charged and
to prevent false or unsubstantiated charges. Courts should,
however, apply the rule with some flexibility and should not
require plaintiffs to plead issues that may have been concealed by
v. City Investing Co. Liquidating Trust, 155 F.3d 644, 658 (3d Cir. 1998)
(quoting Seville Indus. Machinery v. Southmost Machinery, 742 F.2d 786, 791
(3d Cir. 1984) and citing Christidis v. First Pennsylvania Mortg. Trust, 717 F.2d
96, 99 (3d Cir. 1983)). See also Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628,
645 (3d Cir. 1989) (“even under a non-restrictive application of the rule [9(b)],
pleaders must allege that the necessary information lies within defendants’
control, and their allegations must be accompanied by a statement of facts
upon which the allegations are based.”) (quoted in F.D.I.C. v. Bathgate, 27 F.3d
850, 876 (3d Cir. 1994)).
Defendants move to dismiss Count V of the complaint, a claim under the
NJCFA. That Act provides:
The act, use or employment by any person of any unconscionable
commercial practice, deception, fraud, false pretense, false
promise, misrepresentation, or the knowing, concealment,
suppression, or omission of any material fact with intent that
others rely upon such concealment, suppression or omission, in
connection with the sale or advertisement of any merchandise or
real estate, or with the subsequent performance of such person as
aforesaid, whether or not any person has in fact been misled,
deceived or damaged thereby, is declared to be an unlawful
N.J.S.A. 56:8-2. Defendants argue that the Complaint fails to allege that this
was a transaction involving the sale of “merchandise” or that these
sophisticated, corporate audit services were sold to the general public. Finally,
the Defendants argue that Count V lacks the requisite factual specificity.
“Merchandise” sold “to the public”
The NJCFA defines “merchandise” very broadly as “any objects, wares,
goods, commodities, services, or anything offered, directly or indirectly to the
public for sale.” N.J. Stat. Ann.
§ 56:8-1.’ The NJCFA is designed to “protect
consumers who purchase goods or services generally sold to the public at
large,” in other words, “products and services sold to consumers in the popular
sense.” Cetel v. Kirwan Fin. Grp., Inc., 460 F.3d 494, 514 (3d Cir. 2006) (citing
Both goods and services are covered; the parties do not attempt any
Marascio v. Campanella, 689 A.2d 852, 857 (N.J. Super. Ct. App. Div. 1997)
and Arc Networks, Inc. v. Gold Phone Card Co., 756 A.2d 636, 637 (N.J. Super.
Ct. App. Div. 2000)) (internal quotations omitted). The NJCFA is not confined,
however, to items on the shelves of retail stores. It has been held to apply, for
example, to the sale of merchandise to businesses in their capacities as end
users. Hundred East Credit Corp. v. Eric Shuster Corp., 515 A.2d 246, 249 (N.J.
Super. Ct. App. Div. 1986) (finding that “unlawful practices thus can victimize
business entities as well as individual customers”); Dreier Co., Inc. v. Unitroni,c
Corp., 527 A.2d 875, 882 (N.J. Super. Ct. App. Div. 1986) (finding sale of
custom programmed software to business entity was within scope of NJCFA).
“It is the character of the transaction, not the identity of the purchaser, which
determines whether the CFA is applicable.” Findeme Mgmt. Co., Inc., v. Barrett,
955 A.2d 940, 954 (N.J. Super. Ct. App. Div. 2008).
The consumers of merchandise need not be “average consumers”; the
statute may also cover merchandise that is “expensive, uncommon, or only
suited to the needs of a limited clientele.” Prescrztion Counter v. Amerisource
Bergen Corp., 2007 WL 3511301, at *14 (D.N.J. Nov. 14, 2007). If the
purchaser obtains goods and services on its own account, the purchase may be
covered by the NJCFA. Id. (distinguishing merchandise used in the course of
business from that which is not, such as items which are purchased for resale,
designs, and franchises); see also Stockroom, Inc. v. Dydacomp Dev. Corp., 941
F. Supp. 2d 537, 545 (D.N.J. 2013). Defendants identify other factors relevant
to the coverage of the NJCFA: “the sophistication of the parties to the
transaction, whether the parties negotiated before entering into the transaction
and the complexity of the transaction itself.” (Cotiviti Br. at 9, citing
Papergraphics Int’l, Inc. v. Correa, 389 N.J. Super. 8, 13—14 (App. Div. 2006))
Defendants’ contentions are by no means frivolous. But the issue of
whether Defendants’ services constituted merchandise offered to the public
presents factual issues that exceed the scope of a motion to dismiss. These
services may be standard ones, offered to multiple customers on similar terms;
or they may be wholly unique, negotiated on an individual basis between
sophisticated entities; or they may lie somewhere on a continuum between
those two extremes. For now, I find that this element of the NJCFA claim has
been sufficiently alleged; resolution of Defendants’ objections must await
summary judgment or trial.
Where the NJCFA claim falls short is in the specificity of its facts. At
least to the extent that the NJCFA overlaps traditional fraud, it is subject to the
heightened pleading requirements of Rule 9(b). “A plaintiff must allege the
‘who, what, when, where, and how’ of’ a NJCFA claim. Crozier v. Johnson &
Johnson Consumer Companies, Inc., 901 F. Supp. 2d 494, 506 (D.N.J. 2012)
(quoting Lum v. Bank of Am., 361 F.3d 217, 224 (3d Cir. 2004)); F.D.I.C. v.
Bathgate, 27 F.3d 850, 876 (3d Cir. 1994). “[Tjo plead a viable Consumer Fraud
Act claim, Plaintiff must identify each statement and/or omission made by
that he alleges violates the statute and plead with particularity
the basis upon which he contends that such statement and/or omission is
false or misleading. As to the latter, facts, and not mere conclusions or
speculative assertions, must be alleged.” Hodges v. Vitamin Shoppe, Inc., No.
CIV.A. 13-338 1 SRC, 2014 WL 200270, at *5 (D.N.J. Jan. 15, 2014).
This complaint does not come close to meeting that standard. Indeed,
even under the usual Rule 8 standards, I would probably find that Count V
lacks the requisite specificity to set forth a fraud claim.
As an example of what I mean, consider one of the cases cited by Defendants,
Princeton Healthcare System v. Netsmart New York, Inc., 29 A.3d 361 (N.J. Super. Ct.
App. Div. 2011). That New Jersey case found a contract for the installation of a
computer software program to be outside the scope of the NJCFA. Those parties,
however, presented their contentions on a motion for summary judgment, having
developed a factual record. For example, there was evidence that the plaintiff sought
proposals for an upgraded computer system, worked for years on a process to evaluate
the proposals, worked with the defendant to create the computer software, and
engaged in “lengthy negotiations” over the contractual terms. That process culminated
in the design of a “custom-made program to satisfy [plaintiffs] unique needs.” Id. at
474. Whether such factors exist here cannot be established without the benefit of
discovery. See also Stockroom, Inc., 941 F. Supp. 2d at 545.
The complaint alleges “false representations” and describes their general
nature. It does not state who made them, when, where, or how. The complaint
cites two examples of claims for rebates to which Defendants were not entitled.
28, 29) One contains no identifying information at all, beyond a dollar
amount. The other gives dates, but no names or other particulars. Then follows
a general allegation that Reckitt’s “review” had resulted in a “determination”
that there were a significant number of similar cases. (Cplt.
That will not do. Count V is dismissed for failure to state a claim.
Because this is a defect of pleading, rather than a fundamental legal defect,
this dismissal is without prejudice to the submission of a proposed amended
complaint within 30 days.
Common Law Fraud
For similar reasons, I will grant the motion to dismiss Count IV, which
alleges the common law tort of fraud based on the same facts. To establish
common law fraud, a plaintiff must prove: (1) a material misrepresentation of a
presently existing or past fact, (2) knowledge or belief by the defendant of its
falsity, (3) an intention that the other person rely on that misrepresentation, (4)
reasonable reliance thereon by the other person, and (5) resulting damages.
See Gennari v. Weichert Co. Realtors, 691 A.2d 350, 367 (N.J. 1997). Fraud is,
of course, subject to the pleading requirements of Rule 9(b).
The complaint does not plead with specificity that anyone made a false
representation to Reckitt. Again, the complaint speaks in generalities about the
nature of the falsehoods, but without any of the necessary who, what, when,
where, and how. Neither the speaker nor the hearer is identified. Dates and
particulars are absent.
Count IV, too, is dismissed for failure to state a claim, without prejudice
to the submission of a proposed amended complaint within 30 days.
I recognize that this complaint was removed from state court, where plaintiff
would naturally have filed it without regard to federal pleading standards. That is
another reason for permitting amendment.
Counts I, II and III
Breach of Contract
Under New Jersey law, a breach of contract claim requires proof of three
elements: (1) the existence of a valid and enforceable contract, (2) a breach of
that contract, and (3) damages. Murphy v. Implicito, 920 A.2d 678, 689 (N.J.
Super. Ct. App. Div. 2007); accord Frederico v. Home Depot, 507 F.3d 188 (3d
The complaint attaches a written contract. It alleges breach, in that the
Defendants are alleged to have claimed commissions to which they were not
entitled under the terms of the contract. And it alleges damages, to the tune of
more than $2 million. Those are adequate allegations.
Count III alleges that Defendants breached the covenant of good faith
and fair dealing that is implied in every contract. See generally Sons of
Thunder, Inc. v. Borden, Inc., 690 A.2d 575 (N.J. 1997). (I read this as an
alternative to the main theory that Defendants breached the express terms of
the contract.) That implied covenant dictates that a party, even if it does not
breach an express term, cannot act in bad faith to interfere with the other’s
ability to enjoy the fruits of the contract. Wilson v. Amerada Hess Corp., 168
N.J. 236, 244 (2001). The complaint alleges, inter alia, that Defendants,
although they literally submitted the necessary documentation in some cases,
did it in such a way as to defeat the spirit of the contract, which was that
Defendants should profit only to the extent they found hidden overpayments.
Defendants offer an alternative interpretation of the contracts, argue that
Reckitt should have disapproved any submissions it deemed inadequate, and
so forth. These are factual matters that must await discovery.
Counts I, II, and III adequately plead the elements of breach of contract,
and the motion to dismiss them will be denied.
It also alleges, rather vaguely, that Defendants’ agent entered into an
“improper” relationship with an employee, was “abusive,” and so forth. Those
allegations are not essential to a ruling sustaining these Counts, so I set them aside.
For the foregoing reasons, the motions to dismiss are denied as to
Counts I, II, and III, and granted as to Counts IV and V without prejudice to
the submission of a proposed amended complaint within 30 days.
October 3, 2016
United States District Jud
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