The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA
SMART COMMUNICATIONS : Civil No. 1:21-CV-01708
HOLDING, INC., et al., :
:
Plaintiffs, :
:
v. :
:
GLOBAL TEL-LINK CORPORATION, :
et al., :
Defendants. Judge Jennifer P. Wilson
MEMORANDUM
Before the court, after remand for further consideration from the Third
Circuit Court of Appeals, is the motion to dismiss filed by Defendant Global Tel-
Link Corp (“GTL”).1 (Docs. 29, 104-2.) For the reasons that follow, the motion
will be granted in part and denied in part.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY2
Plaintiffs Smart Communications Holding, Inc. and HLFIP Holding, Inc.,
d/b/a Smart Communications IP Holdings (collectively “Plaintiffs”) filed a
complaint against GTL and York County, York County Prison, and Warden Adam
Ogle (“York Defendants”) alleging a violation of the Sherman Act and state-law
1 The determinations the court made regarding York Defendants’ motion to dismiss, Doc. 28,
were not challenged on appeal. (Doc. 104-2, p. 7 n3.) Accordingly, those rulings, contained in
Doc. 96, remain in effect.
2As there has been no factual development since the appeal to the Third Circuit and the parties
did not dispute the court’s recitation of the facts alleged in the complaint, much of this section is
identical to this court’s first opinion on the motions to dismiss in this case. (Doc. 95.)
claims of tortious interference with prospective business relations, unfair
competition, and champerty and maintenance. (Doc. 1.) All four counts of the
complaint relate, in full or in part, to GTL’s conduct in relation to and during the
pendency of the related patent litigation.3 (Id.)
The related patent litigation was initiated via complaint on February 3, 2020.
(Id. ¶ 30.) The patent action alleged infringement by the York Defendants of
Plaintiffs’ MailGuard technology, which involves processing postal mail for
inmates. (Id. ¶¶ 26–30.) Several months after the patent complaint was filed,
counsel arranged for former YCP warden Clair Doll (“Warden Doll”) and the CEO
of Smart Communications, Mr. Logan, to directly communicate to discuss
settlement. (Id. ¶ 34–35.)
According to the complaint in this action, during Mr. Logan and Warden
Doll’s first day of settlement discussions in the patent litigation on August 25,
2020, “Smart Communications learned that YCP’s [inmate calling services,
(“ICS”)] contract with GTL would expire in December of 2020 and became aware
of the financial terms of that contract.” (Id. ¶ 36.) Notably, GTL (and its
predecessor company) has been contracted to provide ICS to YCP since 2003. (Id.
¶ 22.) The following day, Mr. Logan forwarded Warden Doll marketing materials
3 See HLFIP Holding, Inc. d/b/a/ Smart Communications IP Holdings, v. York County, et al.,
1:20-CV-00186.
highlighting Plaintiffs’ various inmate communication technologies services and
options and Warden Doll scheduled a call with Mr. Logan for the following day to
discuss Smart Communications’ services in more detail. (Id. ¶¶ 37–38.) During
the next call, Warden Doll invited Mr. Logan to meet with him and his team at
YCP to discuss “a resolution of the Patent Litigation and to have Smart
Communications present to the YCP team an overview of Smart Communications’
inmate communication services included in the marketing materials, including
Smart Communications’ telephone system and services.” (Id. ¶ 39.)
Over the next several months, while the patent litigation was stayed pending
settlement negotiations, Mr. Logan and Warden Doll engaged in extensive contract
negotiations for Smart Communications to provide ICS to YCP. (See id. ¶¶
40–60.) Not surprisingly, these contract negotiations garnered the attention of the
current contractor for ICS services, GTL. (See id. ¶¶ 61–71.) As a result, GTL
engaged in contract discussions with YCP to extend their ICS contract. (Id. ¶¶ 66–
67.) Plaintiffs further allege that during these discussions, GTL made false and
detrimental statements about Smart Communications in an effort to convince YCP
not to contract with Plaintiffs. (Id. ¶¶ 68–70.) Specifically, these allegations are: if
Smart Communications replaced GTL’s phone system, GTL would be entitled to
seize Smart Communications’ phone equipment due to an alleged judgment against
a company Smart Communications had purchased; that Smart Communications’
Patent was invalid; and claims that Smart Communications was infringing on
patents held by GTL and that GTL would sue for an immediate injunction against
Smart Communications. (Id.)
On November 5, 2020, counsel for Plaintiffs contacted then-counsel for the
York Defendants “to discuss the upcoming deadline for the parties to report to the
Court on the progress towards settlement as required by the terms of the stay that
had been entered. York Defendants’ then-Patent Litigation counsel indicated that
the York Defendants were still moving towards accepting Smart Communications’
contract proposal” for ICS. (Id. ¶ 75.) Then, “[b]ased on assurances from York
Defendants’ Patent Litigation counsel of record, on November 13, 2020, Smart
Communications agreed to join the York Defendants in representing to the Court
presiding over the Patent Litigation that ‘[t]he parties have engaged and continue
to engage in good-faith settlement discussions aimed at resolving this action and
reaching a resolution of their dispute.’” (Id. ¶ 78.)
Ultimately, YCP did not enter an ICS contract with Smart Communications
and instead entered into a new ICS contract with GTL (“YCP-GTL contract”) that
contained an indemnification agreement in which GTL agreed to pay the York
Defendants’ attorneys’ fees already incurred in the patent litigation; pay the York
Defendants’ attorney’s fees and costs that would be incurred to litigate the case to
judgment; indemnify the York Defendants for all claims, actions, suits, financial
judgment, liability, losses, costs, expenses or damages incurred as a result of the
patent litigation; indemnify the York Defendants for all claims of tortious
interference; and control the patent litigation, including selection of counsel and
determining which arguments to advance in the litigation. (Id. ¶¶ 114–116.)
GTL’s attorneys from Sterne Kessler entered their appearance in the patent
litigation on behalf of the York Defendants on January 29, 2021. (Id. ¶¶ 88–94.)
Existing counsel for the York Defendants withdrew their appearances the same
day.
About eight months later, on October 6, 2021, Plaintiffs filed the instant
complaint, naming the York Defendants and GTL in this lawsuit. (Doc. 1.) On
February 23, 2022, Plaintiffs filed a motion for preliminary injunction, seeking to
invalidate the indemnification agreement between GTL and the York Defendants
in the related patent litigation based on a theory of maintenance. (Doc. 62.) On
April 7, 2022, the court denied that motion, finding that Plaintiffs failed to
demonstrate that they would suffer irreparable harm if preliminary injunctive relief
were denied. (Docs. 77, 78.)
On December 6, 2021, both the York Defendants and GTL filed motions to
dismiss. (Docs. 28, 29.) The briefs in support of these motions were filed on
December 20, 2021. (Docs. 36, 37.) Plaintiffs timely filed a brief in opposition to
the York Defendants’ motion on January 14, 2022, and a brief in opposition to
GTL’s motion on January 27, 2022. (Docs. 47, 51.) The York Defendants and
GTL each filed a reply brief on January 28, 2022. (Docs. 52, 53.)
On April 29, 2022, GTL submitted a notice of supplemental authority to
notify the court of a recent precedential opinion by the Third Circuit Court of
Appeals addressing antitrust standing: Host Int’l, Inc. v. MarketPlace, PHL, LLC,
32 F.4th 242 (3d Cir. 2022). (Doc. 86.)4 Upon reviewing this decision, the court
issued an order directing supplemental briefing to address the issue of antitrust
standing, and scheduling oral argument for August 26, 2022. (Doc. 88.) In
accordance with that order, GTL and the York Defendants submitted their
supplemental letter briefs on July 6, 2022. (Docs. 89, 90.) Plaintiffs then timely
filed their responsive letter brief on July 20, 2022. (Doc. 91.) Oral argument on
these motions was held on August 26, 2022.
On November 11, 2022, this court issued an order and memorandum
granting both Defendants’ motions to dismiss. Starting with the antitrust claims,
the court held that the York County Prison itself could not constitute the relevant
geographic market. (Doc. 91, p. 11.)5 Next, the court held that the complaint did
not sufficiently allege substantial foreclosure of the relevant nationwide ICS
4 Supplemental authority was also submitted on April 14, 2022, and September 23, 2022. (Docs.
80, 93.)
5 For ease of reference, the court utilizes the page numbers contained in the CM/ECF header.
market. (Id. at 13.) The court also determined that the complaint did not
adequately allege antitrust standing. (Id. at 20.)
The court next examined the various immunities claimed by the York
Defendants. First, the court determined that the York Defendants were not entitled
to Parker immunity at the motion to dismiss stage, but that the assertion could be
renewed at summary judgment. (Id. at 24.) Second, the court determined that
YCP was entitled to Eleventh Amendment immunity and dismissed Count 1 with
prejudice against YCP. (Id. at 26.) Regarding Warden Ogle, the decided he was
entitled to Eleventh Amendment immunity, to the extent that the relief requested is
prospective, injunctive relief, and dismissed Count 1 without prejudice as to
Warden Ogle. (Id.)
The court then considered the state law claims for tortious interference with
prospective business relations and unfair competition. The court held that the
complaint alleged a prospective contractual relationship, but the complaint failed to
show an absence of privilege, under Restatement (Second) of Torts § 768, because
it failed to allege any independently actionable conduct. (Id. at 29–35.)
Specifically, on this point, the court found that the complaint did not allege an
independently actionable defamation because its allegations of defamatory
statements were conclusory, and the complaint failed to allege an independently
actionable unfair competition claim because that claim would have alleged the
same conduct as described in the unfair competition claim already alleged in the
complaint. (Id.) The court also found that the complaint failed to show an absence
of justification because, after consideration of the factors in Restatement (Second)
of Torts § 767, GTL acted to protect a legitimate business concern. (Id. at 35–37.)
Moving on to the unfair competition claim itself, the court found that
Plaintiffs had presented no case law supporting a cause of action for unfair
competition based on the circumstances presented in this case. (Id. at 37, 38.)
Finally, the court held that the complaint failed to sufficiently allege a claim of
maintenance. (Id. at 38–42.) Thus, the court dismissed Count 1 against YCP and
Warden Ogle with prejudice and Count 1 against York County and GTL and
Counts 2, 3 and 4, without prejudice with leave to amend.6 (Doc. 96.)
Thereafter, on November 30, 2022, Smart filed a notice of appeal. (Doc.
97.) Smart also filed a notice of intention to stand on its complaint on December
16, 2022. (Doc. 99.) After oral argument, the Third Circuit upheld the court’s
determination regarding the anti-trust claims, but remanded the state law claims for
further consideration consistent with the opinion. (Doc. 104-2.) Specifically, the
Third Circuit decided that Smart’s allegations of defamatory statements by GTL
were not entirely conclusory, and directed this court to consider whether these
6 Smart did not amend its complaint within the time allotted by the court’s Order and,
accordingly, the Clerk of Courts closed the case on November 23, 2022.
allegations contain any factual statements or mixed opinion statements sufficient to
support an independently actionable defamation claim. (Id. at 12–16.) The Third
Circuit also directed the court to further consider the unfair competition claim and
what elements are or are not satisfied by the complaint. (Id. at 16.)
After receipt of the mandate from the Third Circuit, this court informed the
parties via Order that it would reconsider the state law tort claims in light of the
Third Circuit opinion from the original motion to dismiss briefing. (Doc. 105.)
Accordingly, the issue is ripe for review.
JURISDICTION AND VENUE
This court has jurisdiction under 28 U.S.C. § 1331, which allows a district
court to exercise subject matter jurisdiction in civil cases arising under the
Constitution, laws, or treaties of the United States. Moreover, this court has
jurisdiction pursuant to 28 U.S.C. § 1332 because there is complete diversity
between the Plaintiff and Defendant and Plaintiff asserts that the amount in
controversy exceeds $75,000. The court also has supplemental jurisdiction over
the related state-law claims pursuant to 28 U.S.C. § 1367. Venue is appropriate
under 28 U.S.C. § 1391.
STANDARD OF REVIEW
In order “[t]o survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible
on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 570 (2007)). A claim is plausible on its face “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. (quoting
Twombly, 550 U.S. at 556). “Conclusory allegations of liability are insufficient” to
survive a motion to dismiss. Garrett v. Wexford Health, 938 F.3d 69, 92 (3d Cir.
2019) (quoting Iqbal, 556 U.S. at 678–79). To determine whether a complaint
survives a motion to dismiss, a court identifies “the elements a plaintiff must plead
to state a claim for relief,” disregards the allegations “that are no more than
conclusions and thus not entitled to the assumption of truth,” and determines
whether the remaining factual allegations “plausibly give rise to an entitlement to
relief.” Bistrian v. Levi, 696 F.3d 352, 365 (3d Cir. 2012).
DISCUSSION
After remand from the Third Circuit, there are only two remaining issues: 1)
whether Smart has adequately alleged an independent cause of action, namely
defamation, to support its tortious interference claim; and 2) whether Smart has
adequately alleged an unfair competition claim. The court will consider both in
turn.
A. Tortious Interference with a Business Relationship
A claim for tortious interference with a business relationship requires the
plaintiff to plead the following elements: “(1) a prospective contractual
relationship; (2) the purpose or intent to harm the plaintiff by preventing the
relation from occurring; (3) the absence of privilege or justification on the part of
the defendant; and (4) the occasioning of actual damage resulting from the
defendant’s conduct.” Brokerage Concepts v. United States Healthcare, 140 F.3d
494, 529–30 (3d Cir. 1998). The court previously decided that Smart had
adequately alleged a prospective contractual relationship, and this determination
was not challenged on appeal. Thus, the court will now turn to element three.
1. Absence of Privilege or Justification
In Pennsylvania, a Plaintiff must show, as part of its prima facie case, that
the defendant’s conduct was not justified or privileged. Acumed LLC v. Advanced
Surg. Servs., 561 F.3d 199, 214 (3d Cir. 2009) (citing Silver v. Mendel, 594 F.2d
598, 602 n.6 (3d Cir. 1990)). As to privilege for a defendant’s conduct,
“Pennsylvania has adopted section 768 of the Restatement (Second) of Torts,
which recognizes that competitors, in certain circumstances, are privileged in the
course of competition to interfere with others’ prospective contractual
relationships.” Acumed, 561 F.3d at 215 (citing Gilbert v. Otterson, 550 A.2d 550,
554 (Pa. Super. Ct. 1998). This is because two parties seeking to sell similar
products to prospective purchasers are necessarily interfering with the other’s
attempts to do the same. Acumed, 561 F.3d at 215. Thus, under the Restatement:
One who intentionally causes a third person not to enter into a
prospective contractual relation with another who is his competitor or
not to continue an existing contract terminable at will does not interfere
improperly with the other’s relation if: (a) the relation concerns a matter
involved in the competition between the actor and the other; (b) the
actor does not employ wrongful means; (c) his action does not create or
continue an unlawful restraint of trade; and (d) his purpose is at least in
part to advance his interest in competing with the other.
RESTATEMENT (SECOND) OF TORTS § 768.
In applying this section, courts also rely on comment e to § 768 and have
interpreted the “wrongful means” element to require that a plaintiff demonstrate
that a defendant engaged in conduct that was actionable on a basis independent of
the tortious interference claim. See Acumed, 561 F.3d at 215; see also Brokerage
Concepts, 140 F.3d at 531. Moreover, the Third Circuit noted that even though the
Pennsylvania courts have not interpreted the “wrongful means” element, it is likely
that the Pennsylvania Supreme Court would adopt this meaning. Acumed, 561
F.3d at 215–16. Indeed, both parties agree that the appropriate interpretation of
this element of the business competitor’s privilege requires that the conduct must
be independently actionable. (Doc. 51, p. 24; Doc. 37, pp. 20–21.)
On remand, the only issue to decide is whether Smart adequately pleads a
defamation claim to support an independently actionable cause of action to satisfy
the “wrongful means” element of the tortious interference claim. The allegedly
defamatory statements are contained in the complaint at ¶¶ 67–71 and summarized
by the Third Circuit as follows:
Smart alleges that in order to make York County drop its negotiations
with Smart, GTL made multiple false statements to York County and
YCP telling them that: pursuant to a judgment it had, it would seize
Smart’s equipment that would be installed to fulfill the ICS contract at
YCP; Smart’s patent at issue in its patent-litigation lawsuit against York
and [YCP] was invalid; and, Smart was infringing multiple GTL
patents and GTL would sue Smart to prohibit it form using those
infringing technologies at YCP.
(Doc. 104-2, p. 14.)
Smart contend that the statements were “published” to York County
officials; the statements applied to Smart; the recipients understood their
defamatory meaning and applicability to Smart; the statements financially harmed
Smart by causing it to lose a contract with the County; and no privilege applied.
(Id. at 26–27). In the reply Brief, GTL first notes that Smart has not raised a claim
of defamation in the complaint, but notwithstanding that problem, Smart’s factual
allegations do not establish a prima facie case of defamation. (Doc. 53, pp. 9–10.)
GTL maintains that the face of the complaint contains merely conclusory
allegations7 and that the statements allegedly made by GTL made were opinion,
not fact, and therefore cannot form the basis of a defamation claim. (Id.)
7 As noted, the Third Circuit has determined that the allegations are not conclusory. Thus, the
court will not address this argument again.
In Pennsylvania, defamation is defined by statute. 42 PA. CON. STAT. §
8343. The statute provides:
In an action for defamation, the plaintiff has the burden of proving,
when the issue is properly raised:
(1) The defamatory character of the communication.
(2) Its publication by the defendant.
(3) Its application to the plaintiff.
(4) The understanding by the recipient of its defamatory meaning.
(5) The understanding by the recipient of it as intended to be applied to
the plaintiff.
(6) Special harm resulting to the plaintiff from its publication.
(7) Abuse of a conditionally privileged occasion.
Id. A communication is defamatory in character if it “tends so to harm the
reputation of another as to lower him or her in the estimation of the community or
to deter third persons from associating or dealing with him or her.” U.S.
Healthcare v. Blue Cross of Greater Philadelphia, 898 F.2d 914, 923 (3d
Cir.1990). However, the harm suffered here must be “the kind of harm which has
grievously fractured his standing in the community of respectable society.” Id.
(quoting Tucker v. Phila. Daily News, 848 A.2d 113, 124 (Pa. 2004)). Moreover,
“[t]he touchstone in determining whether a statement is capable of defamatory
meaning is how the statement would be interpreted by the average person to whom
it was directed.” Mzamane v. Winfrey, 693 F. Supp. 2d. 442, 479 (E.D. Pa. 2010).
Overall, the court must view the statements in context. Thomas Merton Ctr. v.
Rockwell Int’l Corp., 442 A.2d 213, 216 (Pa. 1981).
Only statements of fact are actionable as defamation. Id. An opinion is
actionable only if it could “reasonably be understood to imply the existence of
undisclosed defamatory facts justifying the opinion.” Remick v. Manfredy, 283
F.3d 248, 261 (3d Cir. 2001) (internal citations omitted). Pennsylvania courts take
guidance from Restatement (Second) of Torts § 566 in determining whether a
defamatory statement is actionable. Green v. Minzer, 692 A.2d 169, 174 (Pa.
Super. Ct. 1997). Specifically, Pennsylvania courts rely on comment (c), which
provides:
A simple expression of opinion based on disclosed or assumed
nondefamatory facts is not itself sufficient for an action of defamation,
no matter how unjustified and unreasonable the opinion may be or how
derogatory it is. But an expression of opinion that is not based on
disclosed or assumed facts and therefore implies that there are
undisclosed facts on which the opinion is based, is treated differently.
The difference lies in the effect upon the recipient of the
communication. In the first case, the communication itself indicates to
him that there is no defamatory factual statement. In the second, it does
not, and if the recipient draws the reasonable conclusion that the
derogatory opinion expressed in the comment must have been based on
undisclosed defamatory facts, the defendant is subject to liability.
RESTATEMENT (SECOND) TORTS § 566 cmt c.
There are three allegedly defamatory statements at issue here. First, there is
the statement that:
Smart Communications had purchased a company named Lattice and
that, because of Smart Communications’ alleged arrangement with
Lattice, if YCP proceeded to replace GTL’s phone equipment with
Smart Communications’ phone equipment, GTL had a right to and
would exercise its right to seize Smart Communications’ equipment
based on alleged judgment that GTL had received against Lattice,
thereby leaving YCP without any communications service for the
duration of its potential contract with Smart Communications.
(Doc. 1, ¶ 68). Second, there is the statement that “Smart Communications’
Asserted Patent allegedly was invalid and that the York Defendants should not
settle the Patent Litigation.” (Id. at ¶ 69.) Third, there is the statement that “Smart
Communications was infringing multiple GTL patents, and that GTL would sue
Smart Communications and immediately obtain an injunction to prohibit Smart
Communications from providing certain services[.]” (Id. at ¶ 70.) Smart sums up
all of these allegations as follows:
GTL intentionally and maliciously interfered with the prospective
contract between Smart Communications and York County by falsely
reporting to York County officials that: (a) Smart Communications
would not be able to fulfill the contractual offer set forth in its proposal;
(b) Smart Communications did not own the rights to the systems and
technology needed to perform the contractual duties set forth in its
proposal; and (c) if Smart Communications were awarded the ICS
contract, there would be an interruption in telephone services available
to the inmates, and disorder at the prison would ensue.
(Doc. 1, ¶ 159.) The court will analyze each in turn.
GTL argues that the statements are “inactionable statements of prediction
and opinion.” (Doc. 37, p. 21.) Specifically, the statements that Smart “would not
be able to fulfill the contractual offer, did not own the rights to the systems and
technology needed, and that there would be an interruption in telephone service[,]”
are expressions of opinion. (Id. at 21, 22) (citing Doc. 1, ¶ 159.) Smart counters
that the statement that “GTL had the right to seize Smart Communications’
equipment” is a statement of fact and, “the statement that Smart . . . was infringing
multiple GTL patents, if an opinion could ‘reasonably be understood to imply the
existence of undisclosed defamatory facts justifying the opinion.’” (Doc. 51, p.
26.)
The first statement regarding an alleged judgment that would authorize GTL
to seize Smart’s phone equipment would appear to the average recipient as a
statement of fact. It also does damage to Smart’s business relationships because it
is reasonable to infer that Smart is unable to carry through on their contractual
obligations based on this statement. Accordingly, this statement is defamatory in
character and actionable.
The second statement regarding the validity of Smarts’ patent and whether
the York Defendants should settle is a statement of opinion, especially considering
it was the patent at issue in the underlying litigation. The York Defendants would
have understood that GTL was opining on the ongoing patent litigation. Moreover,
this statement does not imply undisclosed defamatory facts. It only conveys
GTL’s opinion on the underlying patent lawsuit and GTL’s opinion as to what
York County should do in that situation. Therefore, this statement is not
defamatory in nature, and not actionable as defamation.
The third statement that Smart was infringing on multiple GTL patents and
that GTL would sue Smart is a statement of opinion, similar to the above
statement. The third statement expresses how GTL views the viability of certain
patents and expresses its opinion as to the appropriate course of action.
Accordingly, this statement is not actionable as a defamatory statement.
In total, Smart has alleged one actionable defamatory statement. The
parties’ do not address the remaining elements of a defamation cause of action.
For the purpose of deciding whether the complaint has adequately stated a claim,
the court will assume they have been met at this juncture. Accordingly, Smart has
alleged an independently actionable wrong, namely defamation, for purposes of the
tortious interference claim, satisfying element three of the tortious interference
claim. The court will now move on to the remaining elements.
2. Intent and Damages
Element two of a tortious interference with contractual relationship claim
requires a plaintiff to plead that the defendant had a “purpose or intent to harm the
plaintiff by preventing the relation from occurring[.]” Brokerage Concepts, 140
F.3d at 530. “As with intentional torts generally, intent in this case may be shown
where the actor knows an injury is certain or substantially certain to occur as a
result of his action.” Total Care Sys., Inc. v. Coons, 860 F. Supp. 236, 241 (E.D.
Pa. 1994). Neither party discusses this element. However, the court concludes that
Smart has pleaded this element by alleging that “GTL intentionally and
maliciously interfered with the prospective contract between Smart
Communications and York County[.]” (Doc. 1, ¶ 159.) Accordingly, this element
has been adequately alleged.
Finally, turning to element four, which requires that the tortious conduct
cause actual legal damage, GTL argues that the timeline established by the
complaint does not support actual damage because YCP and Smart continued to
have contract negotiations after the allegedly defamatory statements. (Doc. 37, p.
24.) Smart argues that “an immediate cause-and-effect relationship” is not
necessary, and they have pleaded “plausible factual content to support a reasonable
inference that GTL’s conduct caused Smart to lose the contract.” (Doc. 51, p. 28.)
The court agrees with Smart. At this stage, and because determinations of cause
are inherently fact bound, Smart has adequately pleaded a causal relationship
between GTL’s allegedly tortious conduct and YCP’s decision not to contract with
Smart.
In conclusion, Smart has adequately pleaded a cause of action for tortious
interference based on the single defamatory statement outlined above. GTL’s
motion to dismiss will be denied as to Count II for this reason.
B. Unfair Competition
GTL argues that an unfair competition cause of action requires facts alleging
that a defendant has “passed off” certain goods as their own, which resulted in
confusion between the defendant’s goods and a rival’s goods and that an unfair
competition claim mirrors a cause of action under the Lanham Act. (Doc. 37, pp.
24, 26.) Accordingly, GTL argues that the unfair competition claim in the
complaint must fail because the “false statements” in this case are not regarding the
“origin, sponsorship or affiliation” of Smart’s services. (Id. at 25.) Smart responds
that “the tort is not so narrow[,]” and relies on Carl A. Colteryahn Dairy, Inc. v.
Schneider Dairy, 203 A.2d 469 (Pa. 1964), in support of a broader definition of an
unfair competition claim. (Doc. 51, p. 28.) In Schneider Dairy, employees of one
dairy left to work for a competing dairy, and in the course of their new
employment, the employees made false and misleading statements “as to the
circumstance under which they left the employ of Colteryahn and such
representations were made to play on the sympathies of the customers and
influence them so that they could be obtained by Schneider.” Id. at 284. The
Pennsylvania Supreme Court held that “[a]llowing this type of conduct is to
countenance unfair competition[,]” and “[e]quity will prevent unjustified
interference with contractual relationships.” Id.
Smart also relies on Bldg. Materials Corp. of Am. v. Rotter, 535 F. Supp. 2d
518 (E.D. Pa. 2008) and Lakeview Ambulance & Med. Servs., Inc. v. Gold Cross
Ambulance & Med. Servs., Inc., No. 1994-2166, 1995 WL 842000 (Pa. Com. Pl.
Oct. 18, 1995) for its contention that an unfair competition claim can based on a
claim of tortious interference. In Building Materials, the Eastern District of
Pennsylvania noted that “according to the Third Circuit, ‘[a] claim of unfair
competition under Pennsylvania law requires proof that the defendant has ‘passed
off’ the goods of one manufacturer or vendor as those of another, thus creating
confusion between his own goods and those of the rival.’” Bldg. Materials, 535 F.
Supp. 2d at 526 n.4 (citing Scanvec Amiable Ltd. v. Chang, 80 Fed. App’x 171,
180 (3d Cir. 2003)). The court then noted that some Pennsylvania Courts of
Common Pleas had begun adopting the definition of unfair competition contained
in the Restatement (Third) of Unfair Competition, which provides that “[a]s a
general matter, if the means of competition are otherwise tortious with respect to
the injured party, they will also ordinarily constitute an unfair method of
competition[,]” but that no Pennsylvania appellate court has accepted that
definition. Id. The court also noted that several judges in the Eastern District have
applied the Restatement definition. Id. Ultimately, the court dismissed the unfair
competition claim with leave to reassert at a later time “in the hope that, in the near
future, Pennsylvania courts will provide more guidance on the issue.” Id.
Lakeview dealt with two competing ambulance companies, in which Plaintiff
Lakeview alleged that Defendant Gold Cross “embarked on a campaign to block
expansion in the area,” “sought to have Plaintiff’s . . . license denied,” and also
“made false and defamatory statements” to local newspapers. Lakeview, 1995 WL
942000 at *1. The Mercer County Court of Common Pleas reasoned that:
Unfair competition is conduct which is contrary to honest, industrial
and commercial practices. The doctrine of unfair competition extends
to the misappropriation for the commercial advantage of a benefit or a
property right belonging to another. Those in business need to be
assured that competitors will not be permitted to engage in conduct
which falls below the minimum standard of fair dealing. Thus, the
doctrine of unfair competition provides the legal basis for business
competitors to insist on fair play in the market in which they are
involved.
Id. at *1–*2. The court then noted that in Pennsylvania, “the elements of a cause
of action for unfair competition under Pennsylvania common law are identical to
those under the federal Lanham Act[,]” but then did not apply that standard to the
case before it because the Lanham Act “addresses only patent and trademark
actions.” Id. at *2. The court finally looked to the Restatement (Third) of Unfair
Competition § 1, comment (g) which provides, in part, that “if a competitor
interferes with the commercial relations of another by engaging in defamation or
by establishing or maintaining an unlawful restraint of trade, the conduct also
includes unfair competition.” Id. (quoting RESTATEMENT (THIRD) OF UNFAIR
COMPETITION, § 1 cmt g.)) Ultimately, the court denied the preliminary objection
in the nature of a demurrer, deciding that the claim was sufficient as a matter of
law.8 Id. at *3.
As noted by GTL and the above authorities, the Third Circuit has defined an
unfair competition claim under Pennsylvania law as requiring “proof that the
defendant has ‘passed off’ the goods of one manufacturer or vendor as those of
another, thus creating confusion between his ow goods, and those of the rival.”
Scanvec, 80 Fed. App’x at 180 (citing Pa. State Univ. v. Univ. Orthopedics, Ltd,
706 A.2d 863, 870–71 (Pa. Super. Ct. 1998)). While “the contours of
Pennsylvania unfair competition law are not entirely clear [,] . . . all unfair
competition claims recognized by Pennsylvania courts involved some accusation
of “passing off” of one’s own product as another, or a false or dishonest statement,
or tortious interference with contract, or intellectual property theft.” Checker Cab
Phila., Inc. v. Uber Tech. Inc., 689 Fed. App’x 707, 709 (3d Cir. 2017). However,
to define an unfair competition claim simply as tortiously interfering with a
contract and causing damages makes it indistinguishable from a tortious
interference claim. Rather, it appears that a better definition is that “[a] claim for
unfair competition encompasses trademark infringement, but also includes a
8 In Pennsylvania, a preliminary objection in the nature of a demurrer tests the legal sufficiency
of a claim, and “admits all well-pleaded material facts as well as all reasonable inferences
deducible therefrom, but not conclusions of law or unjustified inferences, with all doubts
resolved against the moving party.” Standard Pennsylvania Practice 2d § 25:64.
broader range of unfair practices, which may generally be described as a
misappropriation of the skill, expenditures and labor of another.” Pa. State Univ.,
706 A.2d at 867. In this case, there are no allegations that GTL “passed off” or
misappropriated some service or good of Smart’s as its own. Accordingly, the
complaint fails to state a claim for unfair competition, and the motion to dismiss
will be granted with prejudice9 as to Count II.
CONCLUSION
After consideration in accord with the Third Circuit’s opinion and the law,
the court will grant in part and deny in part GTL’s motion to dismiss. An order
follows.
s/Jennifer P. Wilson
JENNIFER P. WILSON
United States District Judge
Middle District of Pennsylvania
Dated: May 13, 2024
9 The court dismisses this count with prejudice because the parties introduced definitional, legal
arguments as to the scope of an unfair competition claim. Smart has not argued that it meets the
narrower definition. Accordingly, because the court determines that the narrower definition is
the correct one based on controlling precedent, and Smart has not argued that it has pleaded a
claim under that definition, the count will be dismissed with prejudice.