Plastic Packaging Corp. v. Sun Chemical Corp.

• Decision Date: 06 April 2001
• Docket Number: No. 00-2569-JWL.,00-2569-JWL.
• Citation: 136 F.Supp.2d 1201
• Parties: PLASTIC PACKAGING CORP., Plaintiff, v. SUN CHEMICAL CORP., Defendant.
• Court: U.S. District Court — District of Kansas

136 F.Supp.2d 1201

PLASTIC PACKAGING CORP., Plaintiff, v. SUN CHEMICAL CORP., Defendant.

No. 00-2569-JWL.

United States District Court, D. Kansas.

April 6, 2001.

Joel K. Goldman, Husch & Eppenberger, Kansas City, MO, for Plaintiff.

Timothy M. O'Brien, B. Kirsten Ehlen, Shook, Hardy & Bacon L.L.P., Overland Park, KS, for Defendant.

MEMORANDUM AND ORDER

LUNGSTRUM, District Judge.

Plastic Packaging Corporation ("plaintiff"), a manufacturer and seller of printed plastic roll stock, brings this suit in contract and in tort against Sun Chemical Corporation ("defendant"), a manufacturer who supplied plaintiff industrial inks. Plaintiff alleges that defendant, among other things, misrepresented the quality of the inks that it sold to plaintiff, thereby damaging plaintiff's business. Currently before the court is defendant's motion to dismiss most of the tort portions of plaintiff's complaint (Doc. 6). Defendant asserts that plaintiff's claim of affirmative fraud fails to meet the particularity requirements of Fed.R.Civ.P. 9(b), and that plaintiff's claims of "fraud by silence" and "negligent omission" fail to state claims upon which relief can be granted under Fed.R.Civ.P. 12(b)(6). For the reasons stated below, defendant's motion is granted.

I. Facts

The following facts, as alleged in plaintiff's complaint, are accepted as true for the purposes of this motion to dismiss. Plaintiff manufactures rolls of plastic film printed with various designs. A recognized problem with printing on plastic is "blocking," the transfer of ink from the printed surface to the other side of the plastic film when the film is rewound during the manufacturing process. To prevent blocking, plaintiff must use lamination inks specially formulated to print on and adhere to plastic. On November 2, 1995, and June 27, 1997, plaintiff entered into contracts with defendant for ink services and supplies. Pursuant to the contracts, defendant sold plaintiff a brand of ink called Omnibond, which defendant represented would not cause blocking. The Omnibond ink, however, did cause blocking on the film used by plaintiff. When plaintiff brought this problem to defendant's attention, defendant represented to plaintiff that the blocking was caused by plaintiff's manufacturing process, not the Omnibond ink. On or before December 17, 1998, defendant learned that the blocking was caused by the Omnibond ink, but did not disclose this information to plaintiff. Plaintiff learned in approximately September 2000 that defendant had determined that the blocking was caused by defects in the Omnibond ink. Shortly thereafter, plaintiffs terminated the contracts with defendant and filed this lawsuit.

II. Failure to Plead Fraud with Particularity

Defendant first argues that plaintiff has failed to plead fraud with the particularity required by Fed.R.Civ.Pro. 9(b). Rule 9(b) states: "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Rule 9(b)'s heightened pleading requirements serve to provide defendants adequate notice of the plaintiff's claim, to protect defendants from reputational damage caused by "improvident charges of wrongdoing," and to "inhibit the institution of strike suits." Farlow v. Peat, Marwick, Mitchell & Co., 956 F.2d 982, 986 (10th Cir.1992) (quotation omitted). However, "the requirements of Rule 9(b) must be read in conjunction with the principles of Rule 8, which calls for pleadings to be `simple, concise, and direct.'" Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir.1997). Ultimately, in order to survive a motion to dismiss, an allegation of fraud must "set forth the time, place, and contents of the false representation, the identity of the party making the false statements and the consequences thereof." Id. (citing Lawrence Nat'l Bank v. Edmonds, 924 F.2d 176, 180 (10th Cir.1991)). In other words, the plaintiff must set out set out the "who, what, where, and when" of the alleged fraud. See Phillips USA, Inc. v. Allflex USA, Inc., 1993 WL 191615 (D.Kan. May 21, 1993); Independent Drug Wholesalers Group, Inc. v. Denton, 1993 WL 62142 (D.Kan. Feb. 12, 1993).

The court finds that plaintiff's complaint fails to meet the pleading requirements of Rule 9(b). Count I alleges that defendant knowingly or recklessly made false representations that the "Omnibond inks would not cause blocking," and that "the blocking was caused by Plastic's manufacturing process and not by the Omnibond inks." Plaintiff also pleads that "[o]n at least one occasion, Sun changed the label on a container of Ultrabond ink so as to deceive Plastic." While these pleadings answer the question of "what" was allegedly misrepresented, they do not articulate the circumstances surrounding the misrepresentation.

First, plaintiff has not identified the particular individual or individuals who made the misrepresentations. Plaintiff concedes this point in its response brief, but argues that "Sun Chemical can obtain that information through discovery." As this court has previously recognized, however, allowing non-particular fraud claims to proceed to discovery defeats Rule 9(b)'s purposes of bringing an early end to frivolous claims which bring reputational damage. See Safety Tech., L.C. v. LG Tech., 2000 WL 1585631 (D.Kan. Oct. 11, 2000).

Second, plaintiff does not plead where the representation allegedly took place. While plaintiff explains in its response brief that "the fraud was perpetrated on Plastic Packaging at its Kansas City, Kansas manufacturing plant," plaintiff did not include this allegation in its complaint.

Finally, plaintiff's complaint does not state with particularity when the fraud allegedly occurred. Plaintiff states that defendant "knew at least as of December 17, 1998, that Plastic's blocking problem was caused by the Omnibond Cyan Blue ink ... [but] continued to blame the blocking problem on Plastic" until September 2000. Plaintiff fails, however, to identify a date within this year and a half period on which an agent of defendant made a misrepresentation. See Koch v. Koch Indus., Inc., 203 F.3d 1202, 1237 (10th Cir.2000) (allegation that misrepresentations were made "during 1982 and continuing to the present time" does not alert defendants "to a sufficiently precise time frame to satisfy Rule 9(b)").

For these reasons, the court finds plaintiff's fraud claim inadequate. The court finds it possible, however, that plaintiff could plead facts that might cure this deficiency in its complaint. Therefore, the court exercises the discretion provided it by Fed.R.Civ.P. 15(a) and grants plaintiff leave to amend its complaint on or before April 18, 2001, to conform to the pleading requirements imposed by Rule 9(b).

III. Failure to State a Claim Upon Which Relief can be Granted

Defendant next seeks dismissal of plaintiff's claims of fraud by silence and negligent omission, asserting that they fail to state claims upon which relief can be granted. See Fed.R.Civ.P. 12(b)(6). The court will dismiss a cause of action for failure to state a claim only when it appears beyond a doubt that the plaintiff can prove no set of facts in support of the theory of recovery that would entitle him or her to relief, Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Maher v. Durango Metals, Inc., 144 F.3d 1302, 1304 (10th Cir.1998), or when an issue of law is dispositive. Neitzke v. Williams, 490 U.S. 319, 326, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989). The court accepts as true all well-pleaded facts, as distinguished from conclusory allegations, and all reasonable inferences from those facts are viewed in favor of the plaintiff. Intercon, Inc. v. Bell Atlantic Internet Solutions, Inc., 205 F.3d 1244, 1247 (10th Cir.2000). The issue in resolving a motion such as this is not whether the plaintiff will ultimately prevail, but whether it is entitled to offer evidence to support the claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974).

A. Fraud By Silence Claim

In addition to alleging fraudulent affirmative representations, Count I of plaintiff's complaint alleges that defendant committed fraud by failing to communicate material facts to plaintiff. Plaintiff asserts that, as of December 17, 1998, defendant knew that the Omnibond ink was causing the blocking problems but did not disclose this information to plaintiff. Defendant argues that plaintiff's pleadings cannot support a fraud by silence theory because defendant had no duty to disclose this information to plaintiff. Under Kansas law, a necessary element of fraud by silence is that the defendant was under an obligation to communicate material facts to the plaintiff. See DuShane v. Union Nat'l Bank, 223 Kan. 755, 760, 576 P.2d 674, 678-79 (1978); OMI Holdings, Inc. v. Howell, 260 Kan. 305, 345, 918 P.2d 1274, 1299 (1996). A duty to disclose arises in two situations: (1) a contracting party who has superior knowledge, or knowledge that is not within the reasonable reach of the other party, has a legal duty to disclose information material to the bargain; and (2) parties in a fiduciary relationship must disclose material information to one another. See DuShane, 576 P.2d at 679; Denison State Bank v. Madeira, 230 Kan. 684, 691-93, 640 P.2d 1235, 1241-42 (1982). Whether or not a contractual or fiduciary duty to disclose exists is determined by the facts and circumstances of each individual case. See Ensminger v. Terminix Int'l Co., 102 F.3d 1571, 1574 (10th Cir.1996).

Plaintiff argues that the contracts entered into by the parties imposed a duty upon defendant, who had superior knowledge of the ink, to inform plaintiff that the ink was the cause of the blocking. As noted above, Kansas courts have indeed recognized that a party possessing superior knowledge, who partakes to enter into a contract with a party who lacks such knowledge, has a duty to disclose material facts at the time of...