MUNKSJO PAPER AB v. BEDFORD MATERIALS CO., INC.

Filing 39

MEMORANDUM OPINION AND ORDER - upon consideration of Plaintiff's Motion to Dismiss Count III of Defendant's First Amended Answer, Affirmative Defenses, and Counterclaims (ECF No. 35 ), and for the reasons set forth in the accompanying Memo randum Opinion, IT IS HEREBY ORDERED that Plaintiff's Motion to Dismiss Count III of Defendant's First Amended Answer, Affirmative Defenses, and Counterclaims (ECF No. 35 ) is GRANTED. Accordingly, Count III of Defendant's First Amend ed Answer, Affirmative Defenses and Counterclaims is DISMISSED. IT IS FURTHER ORDERED that Defendant is HEREBY GRANTED leave to amend its First Amended Answer, Affirmative Defenses, and Counterclaims on or before May 9, 2018, and as more fully stated in said Memorandum Opinion and Order. Signed by Judge Kim R. Gibson on 4/18/2018. (dlg) Modified on 4/18/2018. (cel)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
)

MUNKS JO PAPER AB,

Case No. 3:16-cv-270

)
)

Plaintiff,

JUDGE KIM R. GIBSON

)
)

v.

)

BEDFORD MATERIALS CO., INC.,

)

)

Defendant.

)

MEMORANDUM OPINION
I.

Introduction

Pending before the Court is Plaintiff's Motion to Dismiss Count III of Defendant's
First Amended Answer, Affirmative Defenses, and Counterclaims. (ECF No. 35.) The
Motion has been fully briefed (see ECF Nos. 36, 38) and is ripe for disposition.
This case arises from disputes involving a long-term supply agreement between
Defendant Bedford Materials Co., Inc. ("Bedford") and Plaintiff Munksjo Paper AB
("Munksjo"). Munksjo now asks this Court to dismiss Count III of Bedford's three-count
First Amended Answer, Affirmative Defenses and Counterclaims ("Amended Answer")
for failure to state a claim upon which relief may be granted pursuant to Federal Rule of
Civil Procedure 12(b)(6) because Count III is barred by the gist of the action doctrine.
Munksjo has not moved to dismiss Count I or Count II of the Amended Answer.
For the reasons that follow, this Court will GRANT MunksjO' s Motion.

II.

Jurisdiction and Venue
The Court has subject matter jurisdiction pursuant to 28 U.S.C § 1332(a)(l) because,

according to the Amended Complaint and the Amended Answer, Munksjo is a Swedish
company with its principal place of business in Sweden, Bedford is a Pennsylvania
corporation with its principal place of business in the Commonwealth of Pennsylvania, and
the amount in controversy exceeds $75,000. (ECF No. 13 <JI<JI 1-3; ECF No. 34 <JI<JI 1-3.)
The Court has personal jurisdiction because Bedford has established sufficient
minimum contacts with Pennsylvania and/or the claims asserted are related to or arise out
of Bedford's contacts with Pennsylvania. (ECF No. 13 <JI 4; ECF No. 34 <JI 4.)
Venue is proper in this district pursuant to 28 U.S.C. § 1391(b)(2) because a
substantial portion of the alleged events or omissions giving rise to Munksjo and Bedford's
claims occurred in the Western District of Pennsylvania. (ECF No. 13 <JI 8; see generally ECF
No. 34.)

III.

Procedural History
As this Court detailed in a prior opinion, see Munksjo Paper AB v. Bedford Materials

Co., Inc., Case No. 3:16-cv-270, 2018 WL 351600, at *1-*2 (W.D. Pa. Jan. 9, 2018), Munksjo
initiated the present matter by filing its original Complaint on December 27, 2016. (ECF
No. 1.) In response, Bedford filed its first Motion to Dismiss and an accompanying brief on
May 26, 2017. (ECF Nos. 9, 10.)
Mooting this first Motion to Dismiss prior to a decision by this Court, Munskj6 filed
its Amended Complaint on June 15, 2017. (ECF No. 13.) Munksjo organized its Amended
Complaint into four counts-all alleging claims arising out of business transactions
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between Munksjo and Bedford. Specifically, the Amended Complaint alleges claims for (1)
breach of the Long Term Supply Agreement by Bedford for failure to make timely
payments, (2) breach of the Promissory Note and the First Amendment to the Promissory
Note by Bedford for failure to make timely payments, (3) breach of the Long Term Supply
Agreement by Bedford relating to advance inventory held by Munksjo, and (4) unjust
enrichment by Bedford for retaining Munksjo's product without payment. (Id. 'Il'Il 31-64.)
On June 29, 2017, Bedford responded by filing its Motion to Dismiss Plaintiff's
Amended Complaint (ECF No. 16) and its Brief in Support of Motion to Dismiss Amended
Complaint for Failure to State a Claim Upon Which Relief Can Be Granted. (ECF No. 17.)
This Court dismissed Count IV of Munksjo' s Amended Complaint, but, otherwise, denied
Bedford's Motion to Dismiss the Amended Complaint through Memorandum Opinion and
Order of January 9, 2018. See Munksjo, 2018 WL 351600, at *7.
On February 23, 2018, Bedford filed its Amended Answer. (ECF No. 34.) Therein,
Bedford alleged three counterclaims against Munksjo: (1) Count I for breach of contract; (2)
Count II for anticipatory breach of contract; and (3) Count III for negligent
misrepresentation. (Id. at 16-20.)
Most pertinent here, on March 5, 2018, Munksjo filed the present Motion to Dismiss
Count III of Defendant's First Amended Answer, Affirmative Defenses and Counterclaims
and accompanying Brief in Support thereof. (ECF Nos. 35, 36.) Bedford filed its Response
in Opposition on March 16, 2018. (ECF No. 38.)

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IV.

Factual Allegations Set Forth in the Amended Answer
The following facts, which the Court accepts as true for the purposes of deciding

Munksjo's Motion to Dismiss, are alleged in Bedford's Amended Answer. (See ECF No.
34.)

Bedford uses thermally-upgraded kraft paper ("Product") as the primary raw
material in its manufacturing operations. (Id. <JI<JI 6-7.) Munksjo is one of the only companies
in the world capable of producing certain grades of this Product. (Id. <JI 8.)
On approximately March 12, 2013, Bedford entered into a Long Term Supply
Agreement ("Agreement") with Munkjo, under which Munksjo agreed to supply and
Bedford agreed to purchase the Product at preferred pricing levels for five years. (Id. <JI 9.)
The preferred pricing provision of the Agreement provides that Munksjo "shall provide
B[edford] preferred pricing on the Product[, which] shall be equal to ten percent (10%) less
than the lowest price for the Product charged to any other customer of [Munksjo] within
the third (60) [sic] days prior to any order from B[edford]." (Id. <JI 10.) The Agreement also
expressly required that Munksjo "maintain two to three (2-3) months['] worth of advance
inventory of the Product in [Munksjo's] Altoona, Pennsylvania warehouse." (Id. <JI 11.)
Munksjo was on notice for the reason(s) for this advance inventory provision at all
times and knew that, if Munksjo failed to timely supply Bedford with its requirements, that
Bedford's business may be interrupted, inevitably leading to an interruption of
manufacturing operations of Bedford's largest customer and the loss of millions of dollars
to Bedford's customer for which Bedford might be held liable. (Id. <JI<JI 13-16.) Munksjo was

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also on notice that such a resulting liability for Bedford "could effectively put Bedford out
of business." (Id. 'JI 17.)
In or around the summer of 2015, Munksjo failed to stock 2-3 months of advance
inventory in Altoona, Pennsylvania. (Id. 'JI 20.) Munksjo failed to give any advanced
warning to Bedford as to this deficiency and, instead, Bedford was simply informed that no
Product was available when Bedford sought to fulfill its own customer's orders. (Id. 'JI 21.)
Due to this lack of Product from Munksjo, Bedford could only meet its obligations to its
own customers and mitigate its damages by seeking out an alternative source of Product,
which required paying above-market prices and paying cash on delivery ("COD"). (Id. 'JI'll
22-24.)
The alternative source that Bedford purchased Product from was a mill in Fitchburg,
Massachusetts known as "Crocker." (Id. 'JI 25.) The Crocker mill permanently closed down
in late 2015-a closure of which Munksjo was aware and which Munksjo knew meant that
that the Crocker mill could not be an alternative source for Product for Bedford in the
future.

(Id. 'lI'lI 26-27.)

Prior to the closure of the Crocker mill, Bedford extensively

investigated a potential purchase of the Crocker mill to ensure a reliable source of Product
in the future. (Id. 'JI 28.) Munskjo was aware of Bedford's potential desire to purchase the
Crocker mill and knew that Bedford would likely terminate or fail to renew the Agreement
with Munksjo were Bedford to purchase the Crocker mill. (Id. 'lI'lI 29-30.)
From July 2015 through November 2015, Bedford and Munksjo engaged in
numerous e-mails, phone calls, and in-person meetings in an effort to mend their strained
relationship. (Id. 'I[32.) The "pervasive message" from these various communications was
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that Munksjo would never again fail to have stock on hand in Altoona, Pennsylvania
because the results would be "devastating" to Bedford. (Id. <JI 33.) These assurances that
Munksjo would have stock on hand in Altoona, Pennsylvania were of particular
importance because of the closure of the Crocker mill and the resultant lack of an alternative
source of the Product. (Id. <JI<JI 34-35.)
However, on July 7, 2016, a Munksjo representative sent an e-mail to Bedford
informing Bedford that "the paper mill product this fall is very heavily booked" and
suggested "the need for Bedford [to] have an approved second source of supply." (Id. <JI<JI
36-37.) After receiving this e-mail, Bedford actively searched for and was able to locate an
alternative supplier of Product. (Id. <JI<JI 39-41.) Yet, this alternative supply of Product was
"either more expensive than purchasing Product from Munksjo, or caused decreased
efficiency in Bedford's production, or both." (Id. <JI 42.)
In September 2016, Munksjo had less than 2 months' worth of Product available in
Altoona and "purposely chose" to service other customers rather than provide Product at
the lower, preferred pricing levels to Bedford. (Id. <JI<JI 44-45.)

V.

Standard of Review
A complaint may be dismissed under Federal Rule of Civil Rule 12(b)(6) for "failure

to state a claim upon which relief can be granted." Connelly v. Lane Const. Corp., 809 F.3d
780, 786 (3d Cir. 2016). But, detailed pleading is not generally required. Id. The Rules
demand only "a short and plain statement of the claim showing that the pleader is entitled
to relief" to give the defendant fair notice of what the claim is and the grounds upon which

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it rests. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Fed. R. Civ. P.
8( a)(2)).

Under the pleading regime established by Twombly and Iqbal, a court reviewing the
sufficiency of a complaint must take three steps. 1 First, the court must "tak[e] note of the
elements [the] plaintiff must plead to state a claim." Ashcroft v. Iqbal, 556 U.S. 662, 675
(2009). Second, the court should identify allegations that, "because they are no more than
conclusions, are not entitled to the assumption of truth." Id. at 679; see also Burtch v. Milberg

Factors, Inc., 662 F.3d 212, 224 (3d Cir. 2011) ("Mere restatements of the elements of a claim
are not entitled to the assumption of truth.") (citation omitted). Finally, "[w]hen there are
well-pleaded factual allegations, [the] court should assume their veracity and then
determine whether they plausibly give rise to an entitlement to relief." Iqbal, 556 U.S. at
679. "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." Id.; see also Connelly, 809 F.3d at 786. Ultimately, the plausibility determination is
"a context-specific task that requires the reviewing court to draw on its judicial experience
and common sense." Iqbal, 556 U.S. at 679.

VI.

Discussion
Munksjo has moved to dismiss Count III of the Amended Answer for failure to state

a claim upon which relief may be granted. (See ECF No. 35.) Count III of the Amended

Although Iqbal described the process as a "two-pronged approach," Iqbal, 556 U.S. at 679, the
Supreme Court noted the elements of the pertinent claim before proceeding with that approach, id.
at 675-79. Thus, the Third Circuit has described the process as a three-step approach. See Connelly,
809 F.3d at 787; Burtch v. Mi/berg Factors, Inc., 662 F.3d 212, 221 n.4 (3d Cir. 2011) (citing Santiago v.
Warminster Township, 629 F.3d 121, 130 (3d Cir. 2010)).
1

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Answer asserts a claim for negligent misrepresentation.

(See ECF No. 34

<_[<_[

61-66.)

Munksjo argues that the "gist of the action" doctrines precludes the pursuit of Count III.

(See ECF No. 36.) This Court agrees.
Throughout their respective briefs, both parties offer extensive argument on
application of the gist of the action doctrine to fraud in the performance versus fraud in the
inducement claims under Pennsylvania law. (See ECF No. 36 at 3-5; ECF No. 38 at 3-7.)
However, the Court preliminary notes that the parties' arguments in this regard are inapt
because they do not align with the claim made out in Count III of the Amended Answer.
Simply put, the Amended Answer seeks to state a claim for negligent misrepresentation-

not for a fraud-based cause of action such as fraudulent misrepresentation. (See ECF No. 34
at 19-20.)
Pennsylvania law recognizes claims for fraudulent misrepresentation. See Bouriez

v. Carnegie Mellon Univ., 585 F.3d 765, 771 (3d Cir. 2009) (quoting Overall v. Univ. of
Pennsylvania, 412 F.3d 492, 498 (3d Cir. 2005). However, Count III of the Amended Answer,
even when all inferences are taken in favor of Bedford, cannot be reasonably construed to
make out a claim for fraudulent misrepresentation or for any claim other than negligent
misrepresentation. (See ECF No. 34 at 19-20.) To the contrary, Count III unequivocally
purports to state a claim for negligent misrepresentation.
First, the heading associated with Count III clearly labels Count III as a claim for
"NEGLIGENT MISREPRESENTATION," unmistakably identifying Munksjo' s alleged
wrongdoing as "negligent misrepresentations." (See id. at 19.)

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Second, the paragraphs under Count III repeatedly refer to Munksjo' s wrongdoing
as "negligent misrepresentations." (Id.)
Third, the content of the allegations under Count III practically mirrors the elements
required to make out a claim for negligent misrepresentation under Pennsylvania law. To
establish a claim for negligent misrepresentation, Plaintiffs must allege "(1) a
misrepresentation of a material fact; (2) made under circumstances in which the
misrepresenter ought to have known its falsity; (3) with an intent to induce another to act
on it; and (4) which results in injury to a party acting in justifiable reliance on the
misrepresentation." Bilt-Rite Contractors, Inc. v. The Architectural Studios, 866 A.2d 270, 277
(Pa. 2005) (internal citation and quotation marks omitted). Closely aligning with these exact
elements, Count III of the Amended Answer alleges that: (1) "Munksjo [sic] made
misrepresentations of material facts" (ECF No. 34 <JI 62); (2) Munksjo "made
misrepresentations ... regarding Munksjo's [sic] ability and/or willingness to perform its
obligations to Bedford" (id.); (3) Munksjo acted "with the intent of inducing Bedford to
cease its efforts to secure an alternate source of Product" (id.); (4) "Bedford justifiability
relied on Munksjo's [sic] representations" which directly, proximately, and foreseeably
caused injury to Bedford." (Id. <Jl<Jl 64-66.) This systematic alignment of elements and
allegations further demonstrates that Count III can only be fairly interpreted to constitute
a counterclaim for negligent misrepresentation.
Lastly, if Bedford were asserting a claim for fraudulent misrepresentation, then
Federal Rule of Civil Procedure 9(b) would impose a heightened pleading standard. See
Fed. R. Civ. P. 9(b). Namely, the Rule provides that "[i]n alleging fraud or mistake, a party
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must state with particularity the circumstances constituting fraud or mistake. Malice,
intent, knowledge, and other conditions of a person's mind may be alleged generally." Fed.
R. Civ. P. 9(b). The Court finds no such particularly in the allegations of the Amended

Answer and, thus, further concludes that Count III of the Amended Answer seeks to make
out a claim for only negligent misrepresentation.
Therefore, despite the considerable attention that both parties give to the divergent
treatment of fraudulent performance and fraudulent inducement claims under
Pennsylvania's iteration of the gist of the action doctrine, the Court concludes that many of
these cited cases and principles are not particularly pertinent to the disposition of
Munksjo' s present Motion to Dismiss. Accordingly, rather than focusing on precedent
involving fraud-based claims, the Court will adhere to and apply the gist of the action
doctrine rule as articulated by the Pennsylvania Supreme Court's landmark case in Bruno

v. Erie Insurance Company, 106 A.3d 48 (Pa. 2014) and its progeny-an analysis which results
in the dismissal of Count III as barred by the gist of the action doctrine.
Pursuant to the gist of the action doctrine under Pennsylvania law, a party cannot
"bring a tort claim for what is, in actuality, a claim for breach of contract." Bruno, 106 A.3d
at 60. "If the facts of a particular claim establish that the duty breached is one created by
the parties by the terms of their contract-i.e., a specific promise to do something that a
party would not ordinarily have been obligated to do but for the existence of the contractthen the claim is to be viewed as one for breach of contract. Id. at 68. "If, however, the facts
establish that the claim involves the defendant's violation of a broader social duty owed to
all individuals ... then it must be regarded as a tort." Id.; see also Downs v. Andrews, 639 F.
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App'x 816 (3d Cir. 2016); Dommel Prop. LLC v. Jonestown Bank and Trust Co., 626 F. App'x
361 (3d Cir. 2015); Rogers v. Centex Corp., 3:16-cv-137, 2018 WL 1370611 (M.D. Pa. Mar. 16,
2018); Telwell Inc. v. Grandbridge Real Estate Capital, LLC, 143 A.3d 421 (Pa. Super. Ct. 2016);

B.G. Balmer & Co. v. Frank Crystal & Company, Inc., 148 A.3d 454 (Pa. Super. Ct. 2016).
Here, Count III of the Amended Answer is barred by the gist of the action doctrine
because the duty purportedly breached by Munksjo existed only because of the Agreement
between Munksjo and Bedford and Count III does not involve the "violation of a broader
social duty owed to all individuals." Bruno, 106 A.3d at 68. As discussed supra Part III,
Bedford's Amended Answer raises three counterclaims against Munksjo: (1) breach of
contract, (2) anticipatory breach of contract, and (3) negligent misrepresentation. (See ECF
No. 34 at 16-20.) However, the negligent misrepresentation counterclaim in Count III fails
to state a separate and distinguishable cause of action from the breach of contract and
anticipatory breach of contract counterclaims in Count I and Count II, therein requiring
dismissal under the gist of the action doctrine.
In Count III, Bedford alleges that Munksjo deceived Bedford into remaining in the
Agreement by falsely suggesting that Munksjo would be able to satisfy the Agreement's
requirements as to the availability of Product to Bedford. (Id. at 19.) This main allegation
and the other allegations that make up Count III fail to state a distinct tort claim separate
from the contract-based theories alleged in Count I and Count II of the Amended Answer.
The factual allegations of Count III and the underlying theory of liability are inextricably
intertwined with the facts of the contract-based counterclaims in Count I and Count II. See

Bengal Converting Servs., Inc. v. Dual Printing, Inc., Civil Action No. 11-6375, 2012 WL 831965,
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at *2-*3 (E.D. Pa. Mar. 13, 2012) (citing Sunburst Paper, LLC v. Keating Fibre Int'l, Inc., no. 063959, 2006 WL 3097771, at *2 (E.D. Pa. Oct. 30. 2006)).
Moreover, focusing on the Pennsylvania Supreme Court's articulation of the gist of
the action doctrine, Bruno specifies that "the nature of the duty alleged to have been
breached" is the "critical determinative factor in determining whether the claim is truly one
in tort, or for breach of contract." Bruno, 106 A.3d at 68. In the present case, based on the
allegations of the Amended Answer and all reasonable inferences in favor of Munksjo
therefrom, Munksjo and Bedford owed each other no duties relevant to these allegations
outside of those duties created by their contractual relationship through the Agreement.
In fact, the negligent misrepresentations that Munksjo allegedly made related to
Munksjo's ability to perform under the terms of the Agreement-duties which Munksjo
was obligated to perform only because of the Agreement. Bedford has not identified any
broader, independent social duty outside of those duties created by the Agreement between
Bedford and Munksjo on which to base a distinct tort claim. See id. Therefore, because
Bedford can only establish that Munksjo owed it a duty through the contract-rather than
because of the type of independent "social duty" required by the Pennsylvania Supreme
Court in Bruno for a distinct, cognizable tort claim-the pursuit of Count III by Bedford is
barred by the gist of the action doctrine. See id.
In sum, as currently stated in the Amended Answer, Count III alleges a
counterclaim that is duplicative of Count I and Count II and seeks relief based on the
violation of duties created by the Agreement itself-not a distinct, broader social duty, as

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required by the Pennsylvania Supreme Court in Bruno. See id. Accordingly, this Court must
dismiss Count III because it is barred by the gist of the action doctrine.
Lastly, the Court notes that, in its response brief, Bedford alternatively seeks leave
to amend its counterclaims. (See ECF No. 38 at 11.) As stated in the Order accompanying
this Memorandum Opinion, the Court grants Bedford leave to amend its counterclaims
because, based on the information available to this Court, the Court is unable to assess
whether further amendment of the counterclaims would be futile to remedy Count III's
failure to state a distinct claim upon which relief can be granted. See Campbell v. M&T Bank,
Case No. 3:16-cv-118, 2018 WL 401523, at *12-*13 (W.D. Pa. Jan. 12, 2018) (citing cases on
granting or denying leave to amend based on futility).

VII.

Conclusion
The Court grants Munksjo' s Motion to Dismiss Count III because Count III is barred

by the gist of the action doctrine as articulated by the Pennsylvania Supreme Court in Bruno.
However, Bedford is granted leave to amend its counterclaims. Thus, this Court dismisses
Count III of Bedford's amended answer without prejudice.
A corresponding order follows.

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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
MUNKSJO PAPER AB,

)

Case No. 3:16-cv-270

)

Plaintiff,

)

JUDGE KIM R. GIBSON

)

v.

)
)

BEDFORD MATERIALS CO., INC.,

)
)

Defendant.

)

ORDER
NOW, this 18th day of April 2018, upon consideration of Plaintiff's Motion to
Dismiss Count III of Defendant's First Amended Answer, Affirmative Defenses, and
Counterclaims (ECF No. 35), and for the reasons set forth in the accompanying
Memorandum Opinion, IT IS HEREBY ORDERED that Plaintiff's Motion to Dismiss
Count III of Defendant's First Amended Answer, Affirmative Defenses, and Counterclaims
(ECF No. 35) is GRANTED. Accordingly, Count III of Defendant's First Amended Answer,
Affirmative Defenses and Counterclaims is DISMISSED.
IT IS FURTHER ORDERED that Defendant is HEREBY GRANTED leave to
amend its First Amended Answer, Affirmative Defenses, and Counterclaims on or before
May 9, 2018.
BY THE COURT

KIM R. GIBSON
UNITED STATES DISTRICT JUDGE