INTERVET, INC. v. MILEUTIS LTD.

Filing 28

OPINION filed. Signed by Judge Freda L. Wolfson on 2/24/2016. (kas, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
___________________________________
:
Civil Action No. 15-1371 (FLW)(TJB)
INTERVET, INC.,
:
:
OPINION
Plaintiff,
:
:
v.
:
:
MILEUTIS, LTD.,
:
:
Defendant.
:
___________________________________ :
WOLFSON, United States District Judge:
This matter comes before the Court on a motion to dismiss, under Federal Rule of Civil
Procedure 12(b)(6), certain counts of the Counterclaim filed by Plaintiff Mileutis, Inc. (“Mileutis”
or “Defendant”). Specifically, Plainitff Intervet, Inc. (“Intervet” or “Plaintiff”), seeks to dismiss
Count II (breach of the duty of good faith and fair dealing), Count III (negligence), Count IV (gross
negligence), Count V (trade libel), and Count VI (tortious interference with prospective economic
relations) of the Counterclaim, as well Mileutis’s demand for consequential damages and lost
profits. For the following reasons, Intervet’s motion is granted in part and denied in part.
Specifically, Counts III and IV of the Counterclaim are dismissed with prejudice because
they are barred by the economic loss doctrine. Counts II, V, and VI of the Counterclaim are
dismissed without prejudice because these counterclaims do not adequately plead facts to show a
prima facie case. Finally, Intervet’s motion to dismiss Mileutis’s demand for consequential
damages and loss damages is denied without prejudice.
I.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY
The following facts are taken from the Counterclaim (“CC”), except where noted, and are

limited to the facts relevant to the motion before the Court. This is a contract case. Mileutis is a

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“clinical-stage biopharmaceutical company whose business concerns the development and
commercialization of natural and novel peptides for animal and human health.” CC ¶ 1. On June
12, 2008, Mileutis entered into a license agreement (“Agreement”) with ScheringPlough Animal
Health Corporation (“SPAH”) “for the purpose of developing and marketing products for several
pharmaceutical indications/applications, including, but not limited to, prevention and cure of
bovine Mastitis,1 reduction of somatic cell counts, involution, reproductive efficiency, and milk
enhancement.” CC ¶ 5; 17. On September 15, 2008, SPAH and Mileutis “entered into a related
agreement with the Israel-United States Binational Industrial Research and Development
Foundation (“BIRD”) for funding assistance on the development of a product for prevention and
cure of bovine Mastitis.” CC ¶¶ 7, 28. Sometime thereafter, Intervet (d/b/a Merck Animal Health
or “Merck AH) 2 “subsumed Schering’s rights and responsibilities under the License Agreement
and the BIRD Agreement (together, the “Agreements”).” CC ¶ 8.
Under the Agreement, Mileutis granted Intervet a license and sublicense to develop
technology and products using Mileutis’s intellectual property rights for a “Commercial Purpose
in the Field.” CC ¶20; see CC ¶ 21(i)-(iv) (defining Mileutis’s intellectual property under the

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According to the Counterclaim, “Mastitis is a common disease affecting breastfeeding
women, dairy cattle and other mammals. In dairy cattle, Mastitis results in the inflammation of
the mammary gland and udder tissue, and may lead to reduction in milk yield, milk quality, agony
to the dairy cow, reduced reproductive performance, death and loss of revenue for dairy
producers.” CC ¶ 6.
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According to the Complaint, “Intervet is a corporation formed under the laws of the State
of Delaware, and it has a principal place of business in Madison, New Jersey. Intervet is the result
of a merger of the now dissolved corporation Intervet Inc. and Schering-Plough Animal Health
(“SPAH”) in 2009. SPAH was the surviving entity of the merger and SPAH thereafter changed
its name to Intervet. Intervet currently does business as ‘Merck Animal Health.’ . . . Intervet is a
wholly owned subsidiary of Merck & Co., Inc.” Compl. ¶ 2.
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Agreement). Although Mileutis claims it fulfilled all of its obligations under the Agreement, it
alleges that Intervet “continuous[ly] breach[ed]” the Agreement. CC ¶¶ 29-30.
Specifically, Mileutis claims that Intervent breached the Agreements by “not performing,
and/or performing in a substandard manner, scientific studies and tasks, by failing and refusing to
compensate Mileutis for its costs to perform, failing to strive to and reach milestones under
deadline, failing to assign knowledgeable and ethical employees to the required tasks, and failing
to communicate with Mileutis about the status of critical information necessary to fulfill the
requirements of the Agreements.” CC ¶ 158. Mileutis also alleges that Intervet made false
communications concerning the efficacy of Mileutis’s technology to third parties, CC ¶¶ 141, 177,
and mispresented that Intervet owned Mileutis’s intellectual property. CC ¶¶ 131-36.
In February 2014, Intervet informed Mileutis that it was terminating the Agreement. CC ¶
10. On February 23, 2015, Plaintiff filed suit against Defendant, seeking a declaration of the rights
of the parties under the Agreement. On June 10, 2015, Defendant filed an Answer, along with six
counterclaims for breach of contract, breach of the duty of good faith and fair dealing, negligence,
gross negligence, trade libel, and tortious interference with prospective economic relations, and
requested consequential damages and lost profits.

On July 10, 2015, Plaintiff filed the instant

motion to dismiss all of Defendant’s counterclaims (except for breach of contract).
II.

STANDARD OF REVIEW
Federal Rule of Civil Procedure 12(b)(6) provides that a court may dismiss a claim “for

failure to state a claim upon which relief can be granted.” When reviewing a motion to dismiss,
courts must first separate the factual and legal elements of the claims, and accept all of the wellpleaded facts as true. See Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009). All
reasonable inferences must be made in the plaintiff’s favor. See In re Ins. Brokerage Antitrust

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Litig., 618 F.3d 300, 314 (3d Cir. 2010). In order to survive a motion to dismiss, the plaintiff must
provide “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). This standard requires the plaintiff to show “more than a
sheer possibility that a defendant has acted unlawfully,” but does not create as high of a standard
as to be a “probability requirement.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
The Third Circuit requires a three-step analysis to meet the plausibility standard mandated
by Twombly and Iqbal. First, the court should “outline the elements a plaintiff must plead to a
state a claim for relief.” Bistrian v. Levi, 696 F.3d 352, 365 (3d Cir. 2012). Next, the court should
“peel away” legal conclusions that are not entitled to the assumption of truth. Id.; see also Iqbal,
556 U.S. at 678-79 (“While legal conclusions can provide the framework of a complaint, they must
be supported by factual allegations.”). It is well-established that a proper complaint “requires more
than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not
do.” Twombly, 550 U.S. at 555 (internal quotations and citations omitted). Finally, the court
should assume the veracity of all well-pled factual allegations, and then “determine whether they
plausibly give rise to an entitlement to relief.” Bistrian, 696 F.3d at 365 (quoting Iqbal, 556 U.S.
at 679). A claim is facially plausible when there is sufficient factual content to draw a “reasonable
inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. The
third step of the analysis is “a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense.” Id. at 679.
Generally, when determining a motion under Rule 12(b)(6), the court may only consider
the complaint and its attached exhibits. However, while “a district court may not consider matters
extraneous to the pleadings, a document integral to or explicitly relied upon in the complaint may
be considered without converting the motion to dismiss into one for summary judgment.” Angstadt

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v. Midd-West Sch. Dist., 377 F.3d 338, 342 (3d Cir. 2004) (citation omitted); see also In re
Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997).
III.

DISCUSSION
As a preliminary matter, the Agreement contains a choice-of-law provision which provides

that “all issues arising under or relating to this Agreement, including, without limitation, its
construction, interpretation, breach, and damages for breach, shall be governed by and construed
in accordance with the laws of the State of New Jersey[.]” Agreement § 11.05(a). Neither party
asserts that another state’s law should apply to the counterclaims at issue in this decision.
A.

Defendant’s Counterclaims of Negligence and Gross Negligence are Barred by
the Economic Loss Doctrine.

Plaintiff argues that Defendant’s counterclaims for negligence and gross negligence are
barred by the economic loss doctrine. In response, Defendant argues that the economic loss
doctrine is not applicable where the torts involved conduct that is extraneous to the contract, such
as where the breaching party owes an independent duty to the other. Def. Opp. Br. at 24-25. Here,
Defendant argues Plaintiff had a duty, independent from the Agreement, to “perform its work
under reasonable customs and standards for research and development of a biopharmaceutical
product as recognized by the scientific community.” CC ¶¶ 168, 174; see also CC ¶¶ 71, 105, 110,
120
“Under New Jersey law, the economic loss doctrine ‘defines the boundary between the
overlapping theories of tort law and contract law by barring the recovery of purely economic loss
in tort, particularly in strict liability and negligence cases.’” Travelers Indem. Co. v. Dammann &
Co., 594 F.3d 238, 244 (3d Cir. 2010) (quoting Dean v. Barrett Homes, Inc., 406 N.J. Super. 453,
470 (App. Div.), rev’d on other grounds, 200 N.J. 207 (2009)). “The purpose of the rule is to

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strike an equitable balance between countervailing public policies[] that exist in tort and contracts
law.” Id. (quoting Dean, 406 N.J. Super. at 470).
Whether a negligence claim is barred by the economic loss doctrine turns on whether the
party has asserted an independent duty apart from that imposed by the contract. Saltiel v. GSI
Consultants, Inc., 170 N.J. 297, 316 (2002) (“Under New Jersey law, a tort remedy does not arise
from a contractual relationship unless the breaching party owes an independent duty imposed by
law.”). “Whether a tort claim can be asserted alongside a breach of contract claim depends on
whether the tortious conduct is extrinsic to the contract between the parties.” Arcand v. Brother
Int’l Corp., 673 F. Supp. 2d 282, 308 (D.N.J. 2009) (citing Touristic Enterprises Co. v. Trane Inc.,
No. 09-2732, 2009 U.S. Dist. LEXIS 106145, at *5-6 (D.N.J. Nov. 13, 2009); CapitalPlus Equity,
LLC v. Prismatic Dev. Corp., No. 07-321, 2008 U.S. Dist. LEXIS 54054, at *17-18 (D.N.J. July
16, 2008)). The rationale underlying the economic loss doctrine is that “[t]ort principles, such as
negligence, are better suited for resolving claims involving unanticipated injuries, and contract
principles are generally more appropriate for determining claims for consequential damages that
parties have or could have address[ed] in their agreement.” Id. (quoting Bubbles N’ Bows, LLC v.
Fey Pub. Co., No. 06-5391, 2007 U.S. Dist. LEXIS 60790, at *30 (D.N.J. Aug. 20, 2007)). “The
existence of a duty and the scope of that duty are generally questions of law for the court to decide.”
Skelcy v. UnitedHealth Grp., Inc., 620 F. Appx. 136, 140 (3d Cir. 2015) (citing Carvalho v. Toll
Bros. & Developers, 143 N.J. 565, 572 (1996)).
Here, the only “independent” duty Defendant has identified is Plaintiff’s “duty” to conduct
itself under reasonable customs and norms applicable to a biopharmaceutical research company.
However, while New Jersey law does recognize independent duties imposed by law upon doctors,
lawyers, insurance brokers, and product manufacturers, Saltiel, 170 N.J. at 317, Defendant has

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failed to cite to a single case in which a biopharmaceutical research company has been held to a
standard of care, imposed by law, when conducting research and development. Indeed, this case
appears substantially similar to Saltiel. In that case, the plaintiff asserted negligence claims against
a landscape architect for preparing turfgrass specifications in a negligent manner. Id. at 299. In
finding that no independent duty existed, the New Jersey Supreme Court observed that the
defendant “possessed specific technical skills that it was obligated to apply under the contract. Its
failure to do so was not a violation of an obligation imposed by law, but rather a breach of its
contractual duties.” Id. at 316-17. Similarly here, Defendant alleges that Plaintiff had specific
technical skills to research and develop pharmaceutical products; Plaintiff’s alleged failure to
perform these tasks according to what Defendant perceives to be the “standard” that such
companies should perform is not a violation of an independent duty imposed by law, but merely
another way of alleging that Plaintiff breached the terms and standards imposed by the Agreement.
Accordingly, Counts III and IV of Defendant’s Counterclaim, asserting negligence and
gross negligence, respectively, are dismissed with prejudice as they are barred by the economic
loss doctrine.
B.

Defendant’s Counterclaim of Breach of the Duty of Good Faith and Fair
Dealing Is Duplicative of its Breach of Contract Counterclaim.

Plaintiff argues that Defendant’s counterclaim for breach of the duty of good faith and fair
dealing should be dismissed based on the failure to plead facts showing bad faith. However,
Defendant argues that it “is not required to plead ‘bad faith or intention’” to state a claim for breach
of the implied covenant of good faith and fair dealing, but rather, it is only required to prove that
Plaintiff acted with bad faith or intention at a later stage in the litigation. Def. Opp. Br. at 20
(emphasis in original). Additionally, Defendant argues that it has pled sufficient facts to show that

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Plaintiff engaged in “repeated bad faith actions and inactions.” Def. Opp. Br. at 21 (citing CC ¶¶
31-153, 160-165) (emphasis in original).
Under New Jersey law, every contract includes an implied covenant of good faith and fair
dealing. Black Horse Lane Assoc., L.P. v. Dow Chem. Corp., 228 F.3d 275, 288 (3d Cir. 2000).
This covenant is independent of the duty to perform the express terms of the contract, and may be
breached without a violation of the contract terms. Sons of Thunder, Inc. v. Borden, 148 N.J. 396,
423 (1997). There are “myriad forms of conduct that may constitute a violation of the covenant
of good faith and fair dealing.” Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping Ctr.
Associates, 182 N.J. 210, 225 (2005). For that reason, “[e]ach case is fact-sensitive.” Id. As a
general rule, “[a] plaintiff may be entitled to relief under the covenant if its reasonable expectations
are destroyed when a defendant acts with ill motives and without any legitimate purpose.” Id. at
226 (citing Wilson v. Amerada Hess Corp., 168 N.J. 236, 251, (2001)). A plaintiff may also be
entitled to relief if “it relies to its detriment on a defendant’s intentional misleading assertions.”
Id. (citing Bak-a-Lum Corp. v. Alcoa Bldg. Prods., Inc., 69 N.J. 123, 129-30 (1976)). “[P]roof of
‘bad motive or intention’ is vital to an action for breach of the covenant.” Id. at 225 (citing Wilson,
168 N.J. at 251). However, no matter what form the alleged breach of the implied covenant takes,
“[t]o state a claim for breach of the implied covenant of good faith and fair dealing a contracting
party must allege that the accused acted in bad faith or engaged in ‘some other form of inequitable
conduct in the performance of a contractual obligation.’” Pactiv Corp. v. Perk-Up, Inc., No. 085072, 2009 U.S. Dist. LEXIS 72796, at *34 (D.N.J. Aug. 18, 2009) (quoting Black Horse, 228
F.3d at 289); see also Alin v. Am. Honda Motor Co., No. 08-4825, 2010 U.S. Dist. LEXIS 32584,
at *31 (D.N.J. Mar. 31, 2010) (“Under New Jersey law, a claim for breach of the duty of good
faith and fair dealing requires a showing of “bad motive or intention,” though at the pleading stage

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all that is required is an allegation of bad faith.”) (citing Seidenberg v. Summit Bank, 348 N.J.
Super. 243, 263 (App. Div. 2002)) (citation omitted).
Defendant is correct that it need not offer evidence to “prove” that Plaintiff acted in bad
faith in the performance of the Agreement at this stage of the litigation and, at this stage in the
litigation, Defendant’s allegations that Plaintiff acted with bad faith, though scant, are sufficient.
See Seidenberg v. Summit Bank, 348 N.J. Super. 243, 263 (App. Div. 2002) (noting that a
complaint adequately pled bad faith to support a claim for breach of the implied covenant where
plaintiff alleged it ‘suffered as a result of . . . [defendant’s] bad faith” and that [defendant’s] actions
were ‘wanton and willful and without privilege or right.’”). Like the court in Seidenberg, this
Court notes that “[w]hether plaintiffs’ proofs will meet the bad faith standard defined in Wilson,
or even survive summary judgment, remains to be seen.” Id.
However, Defendant’s claim is deficient for a different reason.

Here, Defendant’s

allegations of bad faith all relate to Plaintiff’s actions that Defendant alleges form the basis of its
breach of contract counterclaim. “[T]he breach of the implied covenant arises when 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., 172 N.J. 327, 345 (2002) (quoting Bak-A-Lum, 69 N.J. at 129).
Thus, “a ‘[p]laintiff may not maintain a separate action for breach of the implied covenant of good
faith and fair dealing [where] it would be duplicative of [its] breach of contract claim.’” Adler
Eng’rs, Inc. v. Dranoff Props., No. 14-921, 2014 U.S. Dist. LEXIS 153497, *39 (D.N.J. Oct. 29,
2014) (quoting Hahn v. OnBoard LLC, No. 09-3639, 2009 U.S. Dist. LEXIS 107606, at *15
(D.N.J. Nov. 16, 2009)). Here, all of Defendant’s allegations of “bad faith” relate to actions that
Defendant also claims form the basis of its breach of contract counterclaim. Compare CC ¶¶ 56,

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163 (alleging Plaintiff acted in bad faith by not promoting project, obtaining permits, and
developing product, “thereby breaching its fundamental obligations under, as well as the spirit of,
the Agreements and the implied covenant of good faith and fair dealing therein.”) and CC ¶ 162
(alleging Plaintiff acted in bad faith by failing to “provide quality research and development in a
timely, competent, ethical and professional manner” and “concealed critical information”), with
CC ¶ 158 (alleging breach of contract based on Plaintiff’s “not performing, and/or performing in
a substandard manner, scientific studies and tasks, . . . failing to assign knowledgeable and ethical
employees to the required tasks, and failing to communicate with Mileutis about the status of
critical information necessary to fulfill the requirements of the Agreements”).
Defendant cannot merely recite the same conduct it alleges for Plaintiff’s breach of contract
and transform such conduct into a breach of the implied duty of good faith and fair dealing by
appending a conclusory label that those actions breaching the contract were also done in bad faith.
Instead, Defendant must plead facts which would show, if true, that Plaintiff acted in bad faith by
performing actions that, while “consistent with the contract’s literal terms,” were done in bad faith,
with the “effect of destroying or injuring the right of [Defendant] to receive the fruits of the
contract[.]” 3 Wade, 172 N.J. at 345 (citation omitted). Accordingly, Count II of Defendant’s

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The Court notes that Defendant did allege that Plaintiff spread “false information about
the efficacy of Mileutis’s Technology,” to third parties, which “played a material part in inducing
third parties not to enter into commercial agreements with Mileutis,” CC ¶¶ 141, 177, 179.
However, the Counterclaim is silent as to whether these communications were made before or
after Plaintiff terminated the Agreement in February 2014. If Defendant alleges that these
communications occurred during the life of the Agreement, they may qualify as acts, made in bad
faith, in the performance of the contract contract. See Black Horse, 228 F.3d at 88; see also Atl.
City Racing Assoc. v. Sonic Fin. Corp., 90 F. Supp. 2d 497, 511-12 (D.N.J. 2000) (“[A] party must
continue in good faith to perform its obligations under an existing contract until the final hour
when termination of the contract, even pursuant to an express and absolute right to terminate, takes
effect.”); Noto v. Skylands Cmty. Bank, No. A-0322-04T3, 2005 N.J. Super. Unpub. LEXIS 408,
*16-17 (App. Div. Sept. 28, 2005) (“The obligation of good faith performance of a contract, even
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Counterclaim, asserting breach of the duty of good faith and fair dealing, is dismissed without
prejudice.
C.

Defendant Must Plead Facts Which would Show Special Damages to Assert a
Counterclaim of Trade Libel.

Plaintiff argues that Defendant’s counterclaim for trade libel should be dismissed because
Defendant failed to allege special damages, false publication, and malice. Indeed, under New
Jersey law, Defendant, here, must plead facts that would show the four elements to state a claim
for “slander of title or product disparagement,” otherwise known as “trade libel”: “(1) publication
(2) with malice (3) of false allegations concerning plaintiff's property or product (4) causing special
damages, i.e., pecuniary harm.” System Operations, Inc. v. Scientific Games Dev. Corp., 555 F.2d
1131, 1140 (3d Cir. 1977). As discussed in more detail below, Defendant has failed to adequately
allege the element of special damages, but, contrary to Plaintiff’s contentions, Defendant has
adequately pled the elements of false publication and malice.

Accordingly, Count V of

Defendant’s Counterclaim is dismissed without prejudice.
i.

Special Damages

“Unlike ordinary defamation actions, an action for product disparagement requires special
damage in all cases . . . . [and] because this cause of action is designed to protect the economic
interests of a vendor, the plaintiff must plead and prove special damages with particularity.”
Mayflower Transit, LLC v. Prince, 314 F. Supp. 2d 362, 378 (D.N.J. 2004) (citations and internal
quotation marks omitted); see also Fed. R. Civ. P. 9(g) (“If an item of special damage is claimed,
it must be specifically stated.”). “[T]he need to prove such special damages requires that Plaintiffs
allege either the loss of particular customers by name, or a general diminution in its business, and

where it may be terminated without cause, exists up until its right of termination was actually
effective.”) (citation and internal quotation marks omitted), certif. denied, 186 N.J. 242 (2006).
11

extrinsic facts showing that such special damages were the natural and direct result of the false
publication.” Id. (citations and internal quotation marks omitted); see also Patel v. Soriano, 369
N.J. Super. 192, 249 (App. Div.) (“Traditionally, plaintiff was required to identify particular
business interests who have refrained from dealing with him, or explain the impossibility of doing
so. However, where requiring such identification is unreasonable, proof of lost profits resulting
from breach of contract may suffice, especially where the loss is shown with reasonable certainty
and where the possibility that other factors caused the loss is satisfactorily excluded.”), certif.
denied, 182 N.J. 141 (2004).
[I]f predicating its claim on a general diminution in business, plaintiff should . . .
allege[] facts showing an established business, the amount of sales for a substantial
period preceding the publication, the amount of sales for a [period] subsequent to
the publication, facts showing that such loss in sales were the natural and probable
result of such publication, and facts showing the plaintiff could not allege the names
of particular customers who withdrew or withheld their custom.
Mayflower Transit, 314 F. Supp. 2d at 378 (citations and internal quotation marks omitted).
Here, Defendant’s counterclaim fails sufficiently plead the facts that are necessary to
support a trade libel claim based on the “general diminution” of its business, as outlined above.4
Cf. Pactiv Corp., 2009 U.S. Dist. LEXIS 72796 at *30-31 (denying motion to dismiss because
“Defendants did plead special damages with the required level of specificity to survive a motion
to dismiss because they alleged lost sales and lost goodwill regarding established and prospective
customers.”); Graco, Inc. v. PMC Global, Inc., No. 08-1304, 2009 U.S. Dist. LEXIS 26845, at
*121-23 (D.N.J. Mar. 31, 2009) (denying motion to dismiss where complaint adequately pled
special damages based on allegation that plaintiff “lost sales to established customers, existing

4

Although Plaintiff stresses that Defendant has not identified any customers it lost, this
allegation is not necessary to plead this element of its trade libel claim, provided Defendant can
plead the other facts sufficient to show a general diminution of business.
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distributors dropped its product lines, and it was prevented from acquiring new customers that
were also recipients of the [disparaging publication]”) (emphasis added). Instead, Defendant
merely avers generally that “[a]s a direct and proximate results of the trade libel of [Plaintiff],
[Defendant] has incurred and will continue to suffer damages.” CC ¶ 180. This allegation is
insufficient. See Zinn v. Seruga, 2006 U.S. Dist. LEXIS 51773, *33-35 (D.N.J. July 28, 2006)
(“Plaintiffs have not pleaded special damages incurred by Defendants other than a general
allegation that the statements published on the website ‘caused Plaintiffs to sustain damages.’
Plaintiffs[] therefore fail to plead an essential element in their claim of product disparagement[.]”).
ii.

False Publication

“A plaintiff alleging trade libel must [allege] publication of a matter derogatory to the
plaintiff’s property or business, of a kind designed to prevent others from dealing with him or
otherwise to interfere with plaintiff's relations with others.” Patel, 369 N.J. Super. at 246-47. “The
communication must be made to a third person and must play a material part in inducing others
not to deal with plaintiff.” Id. at 247.
In response to Plaintiff’s motion to dismiss, Defendant has identified two communications
it has alleged in its Counterclaim that it claims satisfy this element of its trade libel claim: (1) that
Plaintiff claimed it owned Defendant’s technology, CC ¶¶ 131-36, and (2) that Plaintiff
“knowingly and recklessly disseminated false and disparaging statements and allegations about
Mileutis’s Technology to third parties, including but not limited to, false information about the
efficacy of Mileutis’s Technology.” CC ¶¶ 141, 177.
With respect to the first communication, Plaintiff correctly highlights the allegation that
Plaintiff claimed to own Defendant’s technology was made to the Joint Advisory Board, CC ¶ 136,
which was made up of “representatives of the Parties.” CC ¶ 33. Therefore, this communication

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was not made to a third party, and does not satisfy this element of a trade libel claim. See Patel,
369 N.J. Super. at 247. With respect to the second communication, while Defendant must
eventually provide evidence of the content of Plaintiff’s alleged communication concerning the
efficacy of Defendant’s technology, and identify the third parties these statements were made to
in order to prove its claim, this Court finds that Defendant’s allegation that Plaintiff communicated
“false information about the efficacy of Mileutis’s Technology,” to third parties, which “played a
material part in inducing third parties not to enter into commercial agreements with Mileutis,” CC
¶¶ 141, 177, 179, is sufficient at this stage of the litigation to plead this element of its trade libel
counterclaim.
iii.

Malice

“To allege malice in a trade libel or commercial disparagement claim, the claimant must
allege facts to suggest that the accused knew the statements were false or that they were ‘published
with reckless disregard for their falsity.’” Pactiv Corp., 2009 U.S. Dist. LEXIS 72796, at *29
(quoting Floorgraphics, Inc. v. News America Mktg. In-Store Serv., Inc., No. 04-3500, 2006 U.S.
Dist. LEXIS 70834, at *20 (D.N.J. Sept. 29, 2006)). As discussed above, it is irrelevant whether
Defendant’s allegation concerning Plaintiff’s false claims of ownership of Defendant’s technology
were made with “malice,” because they are not alleged to have been made to third parties. With
respect to Defendant’s claim that Plaintiff made false communications regarding the efficacy of
Defendant’s technology, Defendant has alleged that Plaintiff made such false communications, yet
knew of (and “praised”) the efficacy of its technology. CC ¶ 64. Assuming that this allegation is
true (both as to the efficacy of the technology and Plaintiff’s knowledge), this allegation is
sufficient to plead the element of malice.

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Accordingly, Defendant has sufficiently alleged that Defendant made communications disparaging
the efficacy of its technology with “malice.”
In sum, however, because Defendant has failed to allege special damages, Count V is
dismissed without prejudice.
D.

Defendant Must Plead Facts Which would Show a Reasonable Expectation of
Economic Benefit to Plead a Claim of Tortious Interference with Prospective
Economic Benefit.

Plaintiff argues that Defendant’s counterclaim for tortious interference with prospective
economic advantage should be dismissed based on Defendant’s failure to plead a reasonable
expectation of economic benefit.

Defendant argues that it is not required at this stage of the

litigation to identify specific prospective customers or contracts with which the Plaintiff allegedly
interfered.
Under New Jersey law, the claim of tortious interference with prospective economic
relations has five elements:
(1) a plaintiff’s . . . reasonable expectation of economic benefit or advantage; (2)
the defendant’s knowledge of that expectancy; (3) the defendant’s wrongful,
intentional interference with that expectancy; (4) the reasonable probability that the
plaintiff would have received the anticipated economic benefit in the absence of
interference; and (5) damages resulting from the defendant’s interference.
Lightning Lube v. Witco Corp., 4 F.3d 1153, 1167 (3d Cir. 1993) (citations omitted). “In this type
of claim, a plaintiff . . . must allege facts giving rise to some reasonable expectation of economic
advantage.” Mu Sigma, Inc. v. Affine, Inc., No. 12-1323, 2013 U.S. Dist. LEXIS 99538, at *10
(D.N.J. July 16, 2013) (citing Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739,
751 (1989)). “However, mere hope that the plaintiff would have entered into some future
arraignment with the prospective customer is not sufficient.” Id. at *10-11 (citing Kachmar v.
Sungard Data Sys., 109 F.3d 173, 184 (3d Cir. 1997)).

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Defendant is correct that, under the liberal notice pleading standard of Federal Rule of Civil
Procedure 8(a), it is not required to identify specific lost customers or contracts at this stage of the
litigation. See Slim CD, Inc. v. Heartland Payment Sys., No. 06-2256, 2007 U.S. Dist. LEXIS
62536, at *11-12 (D.N.J. Aug. 22, 2007). However, in Slim CD, the subject of the tortious
interference claim – sale of the company itself – was clearly more than speculative since the
company was able to be sold. Defendant’s allegation regarding its reasonable expectation of
economic advantage is not the same, since the product Defendant ultimately wished to sell was
still allegedly in development. See CC ¶ 182 (“Mileutis has a reasonable expectation of economic
advantage with regard to use of Mileutis’s Technology and Intellectual Property to develop the
Product, as defined in the License Agreement and other animal and human products, including but
not limited to, treatment for uterine infections.”). Indeed, Defendant bases its claim of tortious
interference on the assertion that Plaintiff prevented Defendant “from raising the necessary funds
to develop any new products,” CC ¶¶ 137, 184, which, in turn, would require successful
development and regulatory approval before any economic advantage could be realized; that
allegation of economic benefit is simply too speculative to qualify as a reasonable expectation.
Accordingly, Count VI of Defendant’s Counterclaim, asserting tortious interference with
prospective economic benefit, is dismissed without prejudice.
E.

Consequential Damages and Lost Profits

Plaintiff argues that Defendant’s claim for lost profits must be denied based on the
Agreement’s “Limitation on Liability” provision, Section 9.05, because (1) Defendant has failed
to plead a counterclaim for an intentional tort, 5 and (2) the Agreement explicitly provides, in

5

In light of this Court’s dismissal without prejudice of Defendant’s counterclaim for trade
libel (Count V) and tortious interference with prospective economic advantage (Count VI), the
Court will not address this argument at this time.
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Section 9.05, that lost profits are not recoverable for breach of contract and negligence claims.
Defendant, in turn, argues that (1) the Agreement’s limitation on consequential damages only
applies to third-party claims; (2) Section 9.05 only applies to lost profits that are consequential in
nature, rather than direct damages; and (3) Section 9.05 of the Agreement does not bar damages
that are the result of Plaintiff’s reckless or intentional conduct.
When interpreting contractual language, a court’s “paramount task is to ascertain and give
effect to the contracting parties’ objectively manifested intent.” Windsor Secur., Inc. v. Hartford
Life Ins. Co., 986 F.2d 655, 667 (3d Cir. 1993) (citing Mellon Bank, N.A. v. Aetna Business Credit,
619 F.2d 1001, 1009 (3d Cir. 1980)). “The strongest external sign of agreement between
contracting parties is the words they use in their written contract.” Id. (quoting Mellon Bank, 619
F.2d at 1009); see also Wall St. Aubrey Golf, LLC v. Aubrey, 189 F. Appx. 82, 85 (3d Cir. 2006)
(the “plain language” of the agreement must guide the court’s interpretation).
Section 9.05, entitled “Limitation on Liability,” provides: “Neither Party shall be liable to
the other Party for any special or consequential damages, whether based upon lost goodwill, lost
resale profits, work stoppage, or impairment of other goods or arising out of breach of warranty,
breach of contract, strict liability or negligence.” Defendant argues that Section 9.05’s location in
the Agreement, as the fifth subsection of the Article IX of the Agreement, entitled
“Indemnification,” indicates that it applies only to indemnification for third-party claims, and does
not apply to the first-party claims at issue here. However, Section 11.08(a) of Article XI of the
Agreement, entitled “Captions, Counterparts, and Construction,” provides, in relevant part: “The
captions of the Agreement are for convenience of reference only and shall not affect, define,
describe, extend or limit the scope or intent of this Agreement, including, without limitation, any

17

provision of the construction or interpretation of this Agreement.” Accordingly, the mere fact that
Section 9.05 appears under the caption “Indemnification” is not dispositive on this issue.
Given that the Section 11.08(a) of Article XI or the Agreement expressly prevents the Court
from limiting Section 9.05 to third-party claims based upon its location in Article IX, this Court
concludes that Section 9.05 of the Agreement is ambiguous. Under New Jersey law, “a contract
is ambiguous ‘where the contract is susceptible of more than one meaning.’” Sumitomo Mach.
Corp. of Am., Inc. v. Allied Signal Inc., 81 F.3d 328, 332 (3d. Cir. 1996) (quoting Briggs v. United
Shoe Machinery Corp., 92 N.J. Eq. 277, 287 (Err. & App.), cert. denied, 254 U.S. 653 (1920)).
Here, Section 9.05 could be read either to apply to bar the recovery of consequential and special
damages for both first and third-party claims, or to serve only as a carve-out of liability for such
damages from the previous indemnification provisions included in Article IX.
Accordingly, Defendant’s motion to dismiss is denied without prejudice so that the parties
may conduct discovery to show the circumstances and intentions of the parties in agreeing to
Section 9.05 of the Agreement.
IV.

CONCLUSION
For the foregoing reasons, Plaintiff’s motion is granted in part and denied in part.

Specifically Counts III and IV of the counterclaim are dismissed because they are barred by the
economic loss doctrine. Counts II, V, and VI of the counterclaim are dismissed without prejudice
because these counterclaims do not adequate plead facts that show a prima facie case of each
counterclaim, respectively.

Finally, Plaintiff’s motion to dismiss Defendant’s demand for

consequential damages and loss damages is denied without prejudice.
Dated: February 24, 2016
/s/ The Honorable Freda L. Wolfson
United States District Judge
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