WILHELM REUSS GmbH & CO KG, LEBENSMITTELWERK et al v. EAST COAST WAREHOUSE & DISTRIBUTION CORP.

Filing 87

OPINION. Signed by Magistrate Judge Michael A. Hammer on 06/26/2018. (ek)

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
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Plaintiffs,
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v.
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EAST COAST WAREHOUSE &
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DISTRIBUTION CORP.,
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Defendant.
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WILHELM REUSS GmbH & Co KG,
LEBENSMITTEL WERK, KRUGER
NORTH AMERICA, INC., and
GAEDE & GLAUERDT
ASSECURADEUR GmbH & CO. KG,

I.

Civil Action No. 16-4370 (ES) (MAH)

OPINION

Introduction
This matter comes before the Court on the motion of Plaintiffs, Wilhelm Reuss GmbH &

Co. KG, Lebensmittelwerk (“Wilhelm”), Kruger North America, Inc., (“Kruger”), and Gaede &
Glauerdt Assecuradeur GmbH & Co. Kg. (“Gaede”), for leave to file an Amended Complaint
[D.E. 60] to: (1) add Donald Dudley, Director of Business Operations for the existing Defendant,
East Coast Warehouse, as a defendant; and (2) add claims under the New Jersey Consumer Fraud
Act (“NJCFA”), N.J.S.A. §56:8-1 et seq., and for fraud in the inducement against Dudley and
East Coast Warehouse. The Court has considered the motion, opposition, reply, and applicable
law. Pursuant to Federal Rule of Civil Procedure 78, the Undersigned has considered this matter
on the papers. For the reasons set forth below, the Court will grant leave to add Dudley as a
defendant, and to allow Kruger to assert a claim of fraud in the inducement. The Court will
otherwise deny the motion to amend.

II.

Background
Wilhelm manufactures chocolate hazelnut spreads, chocolate fillings, and desserts.

Complaint, D.E. 1 at ¶ 3. Wilhelm’s customers include Kruger. In October 2013, Kruger hired
East Coast Warehouse to store jars of hazelnut spread (the “Cargo”) being shipped from
Germany in a warehouse located in Elizabeth, New Jersey. Id. ¶ 11. Gaede insured the Cargo
for “transit-related loss and damage.” Id. at ¶ 6. This litigation arises out of alleged damage
caused to the Cargo.
Plaintiffs allege that the Cargo was in good condition when Wilhelm shipped it from
Germany. Id. at ¶ 13. Plaintiffs contend that the Cargo became infested with rodents while it
was stored at East Coast Warehouse’s facility, rendering the Cargo “unfit for human
consumption.” Id. at ¶ 15. Plaintiffs brought this action against East Coast Warehouse, alleging
breach of a bailment contract and damages sustained to the Cargo.
Plaintiffs now seek leave to file an Amended Complaint to join Dudley and John Does as
Defendants, and to assert causes of action for violations of the NJCFA and for fraud in the
inducement. See generally Proposed Amended Complaint, D.E. 63-4. Specifically, Plaintiffs’
Proposed Amended Complaint alleges that Dudley, as East Coast Warehouse’s Director of
Business Operations, along with East Coast Warehouse’s officers and employees, “intentionally
represented to Kruger that East Coast Warehouse carried standard Warehouse Legal Liability
Insurance . . . covering Wilhelm/Kruger’s products if anything happens to them while resident in
[East Coast Warehouse’s] warehouse, caused by [East Coast Warehouse’s] lack of reasonable
care.” Id. at ¶¶ 12, 14, 52 (internal quotations omitted). Plaintiffs contend that Kruger, in
evaluating whether to continue to use East Coast Warehouse’s facilities, asked Dudley the nature

and extent of East Coast Warehouse’s insurance coverage for its warehouse services. Id. at ¶ 19.
According to Plaintiffs, Dudley informed Kruger that East Coast Warehouse carried standard
Warehouse Legal Liability Insurance. Plaintiffs also allege that Dudley represented that the
insurance covered any issues with products that were stored in the warehouse and caused by East
Coast Warehouse’s “lack of reasonable care.” Id. at ¶ 20. Plaintiffs state that Kruger relied on
this representation and therefore decided to continue to store its products with East Coast
Warehouse. Id. at ¶ 21. Plaintiffs further allege, however, that after East Coast Warehouse’s
insurer, Allianz Global Corporate & Specialty (“Allianz”), investigated the rodent infestation, it
declined coverage for the loss of the Cargo. The proffered basis for the declination was that East
Coast Warehouse’s insurance policy did not cover losses caused by rodent infestation, regardless
of whether the infestation was caused by East Coast Warehouse’s failure to exercise reasonable
care. Id. at ¶ 35. As a result of the infested cargo, and declination of insurance coverage,
Plaintiffs allege that they have sustained damages totaling $495,460.80. Id. at ¶ 36.
III.

Analysis
The first issue the Court must determine is whether Federal Rule of Civil Procedure 15 or

Rule 16 governs the motion to amend. Karlo v. Pittsburgh Glass Works, LLC, No. 10-1283,
2011 WL 5170445, at *2 (W.D. Pa. Oct. 31, 2011). Rule 15 states, in pertinent part, “a party may
amend its pleading only with the opposing party’s written consent or the court’s leave. The court
should freely give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2). “Rule 16, on the
other hand, requires a party to demonstrate ‘good cause’ prior to the Court amending its
scheduling order.” Karlo, 2011 WL 5170445, at *2 (citing Fed. R. Civ. P. 16(b)(4)). In this
case, the Court issued an Amended Scheduling Order on July 20, [D.E. 23], which gave the
parties until November 15, 2017 to add new parties or amend pleadings. Plaintiffs filed this

motion for leave to amend their complaint on November 15, 2017, within the time allowed by
the operative scheduling order. Therefore, Rule 15 governs the instant motion.
Under Rule 15, a party may amend the complaint once as of right, and “courts may grant
subsequent amendments ‘when justice so requires.’” Fraser v. Nationwide Mut. Ins. Co., 352
F.3d 107, 116 (3d Cir. 2003) (quoting Fed. R. Civ. P. 15(a)). The Court may deny leave to
amend the pleadings only where there is (1) undue delay, (2) bad faith or dilatory motive, (3)
undue prejudice, (4) repeated failures to cure deficiencies, or (5) futility of amendment. Foman
v. Davis, 371 U.S. 178, 182 (1962); Long v. Wilson, 393 F.3d 390, 400 (3d Cir. 2004) (“We have
held that motions to amend pleadings [under Rule 15(a)] should be liberally granted.”) (citations
omitted); Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir. 2002). Here, East Coast
Warehouse argues that Plaintiffs’ claim under the NJCFA is futile because Kruger is not a
consumer under the NJCFA, nor was the purchase of East Coast Warehouse’s storage services a
transaction covered by the NJCFA. Additionally, East Coast Warehouse argues that Plaintiffs’
claim of fraud in the inducement is similarly futile because it is barred by the economic loss
doctrine.
A court will consider an amendment futile if it “is frivolous or advances a claim or
defense that is legally insufficient on its face.” Harrison Beverage Co. v. Dribeck Imps., Inc.,
133 F.R.D. 463, 468 (D.N.J. 1990) (citations omitted) (internal quotations marks omitted). To
determine whether an amendment is insufficient on its face, the Court employs the standard
applied to Rule 12(b)(6) motions to dismiss. In re Burlington Coat Factory Sec. Litig., 114 F.3d
1410, 1434 (3d Cir. 1997). Under this standard, the question before the Court is not whether the
movant will ultimately prevail, but whether the complaint sets forth “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570

(2007); Hishon v. King & Spalding, 467 U.S. 69, 73 (1984) (establishing that a “court may
dismiss a complaint only if it is clear that no relief could be granted under any set of facts that
could be proved consistent with the allegations”); Harrison Beverage, 133 F.R.D. at 468
(“‘Futility’ of amendment is shown when the claim or defense is not accompanied by a showing
of plausibility sufficient to present a triable issue.”). A two-part analysis determines whether this
standard is met. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009) (citing Ashcroft
v. Iqbal, 556 U.S. 662, 629 (2009)).
First, a court separates the factual and legal elements of a claim. Fowler, 578 F.3d at 210.
All well-pleaded facts set forth in the pleading and the contents of the documents incorporated
therein must be accepted as true, but the Court may disregard legal conclusions. Id. at 210–11;
West Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 97 n.6 (3d Cir. 2010); see also
Iqbal, 556 U.S. at 678 (noting that a complaint is insufficient if it offers “labels and conclusions,”
a “formulaic recitation of the elements of a cause of action,” or “naked assertions” devoid of
“further factual enhancement”) (alterations omitted) (internal quotations marks omitted).
Second, as stated above, a court determines whether the plaintiff's facts are sufficient “to
state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570. As the Supreme
Court instructed in Iqbal, “[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.” 556 U.S. at 678. The plausibility standard is not a “probability requirement,” but the
well-pleaded facts must do more than demonstrate that the conduct is “merely consistent” with
liability so as to “permit the court to infer more than the mere possibility of misconduct.” Id. at
678–79 (citations omitted) (internal quotation marks omitted). This “context-specific task ...
requires the reviewing court to draw on its judicial experience and common sense.” Id. at 679.

As an initial matter, the Court notes that although Plaintiffs collectively filed this motion
to include additional claims under the NJCFA and for fraud in the inducement, the proposed claims
are limited to Kruger. The Proposed Amended Complaint alleges that East Coast Warehouse made
the representations regarding the scope of insurance coverage solely to Kruger. The new claims
in the Proposed Amended Complaint are silent as to Wilhelm or Gaede. Additionally, neither the
Proposed Amended Complaint nor motion papers in support of amendment argue that Wilhelm or
Gaede are entitled to recover based on an assignment, contract, or agency principles. Therefore,
the Court considers the application to add claims under the NJCFA and for fraudulent inducement
solely as to Kruger.
The Court next considers whether the Proposed Amended Complaint sufficiently states a
claim by Kruger of violations of the NJCFA and for fraud in the inducement.
a. NJCFA
East Coast Warehouse argues that Kruger does not have standing under the NJCFA, and
even if it did, the Proposed Amended Complaint does not plead a prima facie claim for fraud under
the Act. The Court will take each argument in turn.
East Coast Warehouse argues that Kruger does not have standing to bring a claim under
NJCFA because Kruger is not a “consumer” within the meaning of the NJCFA, nor are the services
offered by East Coast Warehouse the type of services covered by the Act. Defts.’ Opp’n Br. to
Mot. to Amend, D.E. 64, at 11. To determine whether a plaintiff has standing under the NJCFA,
the court must look at the character of the transaction. The NJCFA “seeks to protect consumers
who purchase ‘goods or services generally sold to the public at large.’” Cetel v. Kirwan Fin.
Group, Inc., 460 F.3d 494, 514 (3d Cir. 2006) (quoting Marascio v. Campanella, 298 N.J. Super.
491 (App. Div. 1997)). As the Third Circuit has explained, “the [NJCFA] is not intended to cover

every transaction that occurs in the marketplace, but, rather, its applicability is limited to consumer
transactions which are defined both by the status of the parties and the nature of the transaction
itself.” Id (internal quotations omitted).
It is well established that one must be a “consumer” to have standing to sue under the
statute. See City Check Chasing, Inc. v. National State Bank, 122 N.J. 389 (1990) (citing Hundred
East Credit Corp. v. Eric Schuster, 212 N.J. Super. 350, 354-357 (App. Div. 1986), certif. denied,
107 N.J. 60 (1986)). The NJCFA does not define who, or what, qualifies as a consumer. However,
courts have routinely held that a business entity can qualify as a consumer under the NJCFA. See
J&R Ice Cream Corp. v. California Smoothie Licensing Corp., 31 F.3d 1259, 1273 (3d Cir. 1994)
(citing New Jersey cases that hold that purchasers of yachts, tow trucks, computer peripherals, and
prefabricated wall panels are all “consumers” under the NJCFA). Courts have applied the NJCFA
to business entities “who purchase goods and services for use in their business operations.”
Prescription Counter v. AmerisourceBergen Corp., No. 04-5802, 2007 U.S. Dist. LEXIS 84102,
2007 WL 3511301 at *44 (D.N.J. Nov. 14, 2007). To determine whether a business entity is acting
as a consumer or acting as a business, courts have examined various factors, including whether
(1) the purchased goods were resold at a profit; (2) the parties were ‘experienced
commercial entities of relatively equal bargaining power’ and the plaintiff ‘was not an
unsophisticated buyer suffering a disparity of industry knowledge;’ (3) the parties
negotiated the relevant contracts; and (4) the plaintiff had taken steps to guard against
the possibility of receiving fraudulent goods.
Hatteras Press, Inc. v. Avanti Computer Sys., 2017 U.S. Dist. LEXIS 101732, 2017 WL 2838349
(D.N.J. June 30, 2017) (quoting Papergraphics Int’l, Inc. v. Correa, 389 N.J. Super. 8, 13-14 (App.
Div. 2006)).
In Papergraphics, the New Jersey Superior Court, Appellate Division held that a plaintiff
who purchased 9,714 printer ink cartridges from a buyer to resell at a profit was not a consumer

within the meaning of the NJCFA. 389 N.J. Super at 14. The court found that “although plaintiff
purchased a common consumer product, plaintiff was not a ‘consumer’ under the [NJCFA]”
because the quantity of goods, as well as the purpose of the purchase, indicated the transaction fell
outside the purview of the NJCFA. The court also found that the parties were “experienced
commercial entities of relatively equal bargaining power which engaged in negotiated contracts.”
The court noted that plaintiff was a sophisticated buyer and knew the potential risks of imitation
products online, and in fact that plaintiff had taken steps to guard against the possibility of
purchasing counterfeit goods by reviewing a sample ink cartridge.
Applying the foregoing standards, the Court concludes that the Proposed Amended
Complaint does not sufficiently allege facts indicating that Kruger was acting as a consumer when
contracting with East Coast Warehouse. The Proposed Amended Complaint alleges that Kruger
“is a subsidiary of Wilhelm and imports and distributes Wilhelm’s products in the U.S.” Proposed
Amended Complaint, D.E. 63-4, at ¶ 6. As an importer and distributor, Kruger was presumably
well versed in storage services for products intended to distribution to third-party sellers, insofar
as the shipment and distribution of Wilhelm’s products from overseas plainly requires storage of
those products. The Proposed Amended Complaint does not plead allegations sufficient to support
a conclusion that Kruger suffered a disparity of industry knowledge. Nor does it allege any facts
indicating that Kruger and East Coast Warehouse had unequal bargaining power while negotiating
the Agreement.
Similar to Papergraphics, Kruger also took steps to protect its potential loss exposure by
inquiring about the level of insurance coverage on the Cargo. Kruger specifically inquired about
the nature and extent of East Coast Warehouse’s insurance, indicating its awareness of warehouse
industry practices and the possibility that the Cargo could be damaged while in storage. Further,

the Proposed Amended Complaint makes clear that the parties negotiated the initial Agreement,
see ¶ 18, further indicating Kruger’s status as a business and not a consumer. Additionally, the
Court is not persuaded that storage services are somehow outside of Kruger’s standard business
operation. As stated above, Kruger’s position as distributor of Wilhelm’s products clearly
indicates that storage is a routine component of Kruger’s importation and distribution activities.
Plaintiffs, therefore, have no plead facts sufficient to show that Kruger is a consumer within the
meaning of the NJCFA. Having determined that Kruger lacks standing to state a claim under the
NJCFA, the Court need not reach whether Kruger has plead a prima facie claim under the NJCFA.
b. Fraud in the Inducement
Kruger also seeks to amend the Complaint to include a claim of fraud in the inducement
based on East Coast Warehouse and Dudley’s statements to Kruger regarding the nature and extent
of East Coast Warehouse’s insurance coverage. East Coast Warehouse, however, contends that
the economic loss doctrine bars this claim. “The economic loss doctrine ‘prohibits plaintiffs from
recovering in tort economic losses to which their entitlement flows only from a contract.” Bracco
Diagnostics, Inc. v. Bergen Brunswig Drug Co., 226 F. Supp. 2d 557, 562 (D.N.J. 2002) (quoting
Duquesne Light Co. v. Westinghouse Elec. Co., 66 F.3d 604, 618 (3d Cir. 1995). “[A] well-settled
exception to the economic loss doctrine is fraud in the inducement of a contract[]” “‘or an
analogous situation based on pre-contractual misrepresentations.’” Fischell v. Cordis Corp., 2016
U.S. Dist. LEXIS 131260, (D.N.J. Sep. 26, 2016) (quoting Bracco Diagnostics, 226 F. Supp. 2d
at 563). In order to establish a claim for fraudulent inducement, the following elements must be
shown: “(1) a material representation of a presently existing or past fact; (2) made with no
knowledge of its falsity; and (3) with the intention that the other party rely thereon; (4) resulting

in reliance by that party; (5) to his detriment.” RNC Sys., Inc. v. Modern Tech Grp., Inc., 861 F.
Supp. 2d 436, 451 (D.N.J. 2012).
When assessing whether the fraud in the inducement exception applies, courts “distinguish
between claims intrinsic to the contract, which are barred by the doctrine, and claims extrinsic to
the contract, which are not barred by the doctrine.” Ribble Co. v. Burkert Fluid Control Sys., 2016
U.S. Dist. LEXIS 161746 at * 8, (D.N.J. Nov. 22, 2016). Put another way, “courts will generally
hold that ‘[f]raud claims can proceed alongside breach of contract claims where there exists fraud
in the inducement of a contract or an analogous situation based on pre-contractual
misrepresentations,’ as opposed to an allegation of fraud in the performance of the contract.” Id.
(quoting RNC Sys., Inc. v. Modern Tech Grp., Inc., 861 F. Supp. 2d 436, 451 (D.N.J. 2012).
Therefore, a plaintiff must allege that the “underlying allegations involve misrepresentations
unrelated to the performance of the contract, but rather precede the actual commencement of the
agreement.” State Capital Title & Abstract Co. v. Pappas Bus. Servs., LLC, 646 F. Supp. 2d 688,
676 (D.N.J. 2009).
Here, East Coast Warehouse argues that Kruger’s claim for fraud in the inducement is
related to the performance of the Agreement between the parties for the storage of the Cargo, and
therefore is barred by the economic loss doctrine. Specifically, East Coast Warehouse contends
that the email exchange in which Dudley made the alleged intentional misrepresentation between
March 6-24, 2014, while the parties entered into the Agreement on September 10, 2013. As
such, East Coast Warehouse argues that the so-called fraud is related to performance under the
Agreement, not the formation of the Agreement because the Agreement was already in effect.
Kruger, however, contends that these emails were exchanged during “what effectively

constituted contract renewal discussions” meaning the false representations were made preperformance. See Reply Br., D.E. 67, at 21.
In G&F Graphic Servs. V. Graphic Innovators, Inc., 18 F. Supp. 3d 583, (D.N.J. 2014),
the court found that the fraud in the inducement exception to the economic loss doctrine applied
where the alleged facts “supported an inference that [plaintiff] would not have contracted to
purchase [a press] given its knowledge of the historical problems with that model, [] thereby
supporting a conclusion that the alleged misrepresentation induced [plaintiff] to enter into a
contract with [defendant].” Id. at 593. The court found that “such representations are
necessarily ‘extraneous to the contract’ because they took place prior to the execution of the
contract[.]” Id. (quoting Bracco, 226 F. Supp. 2d at 564). Here, the Proposed Amended
Complaint explicitly alleges that Kruger “[in] evaluating whether to continue to store
its/Wilhelm’s goods at [East Coast Warehouse’s] warehouse,” specifically “asked Dudley to
advise the nature and extent of the insurance [East Coast Warehouse] maintained relating to its
provision of warehouse services.” D.E. 63-4 at ¶ 19. Further, the Proposed Amended Complaint
alleges that “[i]n reliance on that representation,” Kruger chose to continue to store their
products at East Coast Warehouse’s facility. Id. at ¶ 21. Although it is not clear whether a new
contract was formed following this decision by Kruger, the Proposed Amended Complaint
clearly alleges that the misrepresentation occurred before Kruger’s decision to continue to work
with East Coast Warehouse. Additionally, East Coast Warehouse has not provided any case law
showing that a claim of fraud in the inducement cannot be based on a decision to continue
performance pursuant to an existing contract. Accordingly, this Court cannot conclude that the
economic loss doctrine bars Kruger’s claim for fraud in the inducement.

East Coast Warehouse also argues that the Proposed Amended Complaint fails to
sufficiently plead the requisite scienter, intent, reliance or damages required for Kruger’s fraud
claim. The Court disagrees. The Proposed Amended Complaint sufficiently pleads each
element of fraud in the inducement. Specifically, it alleges that East Coast Warehouse and
Dudley intentionally misrepresented to Kruger that East Coast Warehouse carried standard
liability insurance “intending to induce Kruger to continue to store Wilhelm/Kruger products and
to store the Cargo in [East Coast Warehouse’s] [w]arehouse.” See D.E. 63-4 at ¶ 52. It further
alleges that East Coast Warehouse, Dudley, and the John Does “knew and/or believed that [East
Coast Warehouse] did not carry insurance covering damage to Wilhelm/Kruger’s products,
including the Cargo, caused by [East Coast Warehouse’s] failure to exercise reasonable care in
preventing rodent infestation of those products.” Id. at ¶ 53. Plaintiffs allege that Kruger
“reasonably relied upon [East Coast Warehouse’s], Dudley’s, and the John Does’
misrepresentations concerning [East Coast Warehouse’s] insurance coverage in deciding to
continue to store Wilhelm/Kruger products and to store the Cargo at [East Coast Warehouse’s]
Warehouse.” Id at ¶ 54. Kruger alleges that “as a direct and proximate cause of [East Coast
Warehouse’s] fraud in the inducement, Plaintiffs sustained damages . . . in the sum of
$495,460.80.” Id. at ¶ 55. It is clear, therefore, that the Proposed Amended Complaint contains
sufficient allegations as to Kruger’s claim of fraud in the inducement.
IV.

Conclusion
Based on the foregoing, Kruger’s motion for leave to amend is granted insofar as it seeks

to it add Dudley as a defendant and add Kruger’s claim for fraud in the inducement. Kruger’s
motion for leave to amend is denied insofar as it seeks to add claims under the NJCFA. An
appropriate order accompanies this opinion.

s/ Michael A. Hammer
UNITED STATES MAGISTRATE JUDGE

Dated: June 26, 2018