Waterloov Gutter Protection v. Absolute Gutter

• Citation: 64 F.Supp.2d 398
• Decision Date: 28 September 1999
• Docket Number: Civil Action No. 97-2554.
• Parties: WATERLOOV GUTTER PROTECTION SYSTEMS CO., INC., Plaintiff, v. ABSOLUTE GUTTER PROTECTION, L.L.C., Charles Knight, William Gumpper, Gumpper's Gutter Service, Ray Vandergrift, Nelson Sensenig, individually and as agent of Sensenig Spouting and White Oak Mfg., L.L.C., Defendants, v. Richard L. Kuhns, Charles Lee Thomason, Raymond R. Moser, Jr., Emon J. Wall, and Thomason & Moser, Additional Counterclaim Defendants.
• Court: United States State Supreme Court (New Jersey)

64 F.Supp.2d 398

WATERLOOV GUTTER PROTECTION SYSTEMS CO., INC., Plaintiff, v. ABSOLUTE GUTTER PROTECTION, L.L.C., Charles Knight, William Gumpper, Gumpper's Gutter Service, Ray Vandergrift, Nelson Sensenig, individually and as agent of Sensenig Spouting and White Oak Mfg., L.L.C., Defendants, v. Richard L. Kuhns, Charles Lee Thomason, Raymond R. Moser, Jr., Emon J. Wall, and Thomason & Moser, Additional Counterclaim Defendants.

Civil Action No. 97-2554.

United States District Court, D. New Jersey.

September 28, 1999.

COPYRIGHT MATERIAL OMITTED

Robert F. Zielinski, Jacob C. Cohn, David E. Landau, Catherine L. Sakack, Wolf, Block, Schorr and Solis-Cohen LLP, Camden, NJ, for Plaintiff, Waterloov Gutter Protection Systems Co., Inc. and Additional Counterclaim Defendant Richard L. Kuhns.

Norman E. Lehrer, Vanitha M. Elgart, Norman E. Lehrer, P.C., Cherry Hill, NJ, for Defendants, Absolute Gutter Protection, L.L.C. and Charles Knight.

Michael J. Canning, Giordano, Halleran & Ciesla, P.C., Middletown, NJ, for Additional Counterclaim Defendants, Charles Lee Thomason, Raymond R. Moser, Jr., Emon J. Wall, and Thomason & Moser.

OPINION

ORLOFSKY, District Judge.

This case began as a relatively straight-forward patent infringement dispute between two rain gutter manufacturers. Plaintiff, Waterloov Gutter Protection Co., Inc. ("Waterloov"), manufactures and sells a patented device that directs rain water into a roof gutter while preventing leaves and other debris from falling into and clogging the gutter. It alleges that Defendant Charles Knight ("Knight"), through his company, Absolute Gutter Protection, L.L.C. ("Absolute"), makes and markets a gutter essentially identical to Waterloov's.

The scope of the case broadened considerably, however, when Knight and Absolute (collectively "Defendants") filed an answer with counterclaims. Four of these counterclaims allege wrongdoing not only on the part of Waterloov, but also by Waterloov's attorneys. The first counterclaim alleges that Waterloov and its attorneys engaged in acts of unfair competition by sending letters to Absolute's customers notifying them that they were infringing Waterloov's patents by purchasing Absolute gutters. The other three counterclaims relate to a failed business venture involving Knight, Waterloov's president and owner, Richard L. Kuhns ("Kuhns"), and one of Waterloov's attorneys, Raymond R. Moser, Jr. ("Moser"). Knight alleges that Kuhns and Moser induced him to invest $16,000 in the start-up of Waterloov International Corporation ("WIC"), a company established to market Waterloov gutters in foreign countries, even though Kuhns and Moser knew that Waterloov gutters were ineligible for foreign patent protection. Based upon that scenario, the Defendants filed counterclaims for common law fraud, violations of the New Jersey Consumer Fraud Act, and attorney malpractice. Moser and Waterloov's other attorneys, Charles Lee Thomason ("Thomason"), Emon J. Wall ("Wall"), and the law firm of Thomason & Moser (collectively "Attorney Defendants"), have filed a motion for summary judgment on all four counterclaims. Two of the four counterclaims raise novel issues of law involving the application of a state-law litigation privilege in a federal question case and whether New Jersey's Consumer Fraud Act governs the conduct of the Attorney Defendants in this case.

Knight and Absolute's unfair competition claim requires this Court to decide whether New Jersey's litigation privilege, a state-law privilege, is preempted by federal law in a federal question case. Specifically, I must determine whether New Jersey's "absolute litigation privilege" protects attorneys who send notices of patent infringement to third parties when federal law permits liability to be imposed for the transmittal of such demand letters on a showing of bad faith. Because the application of New Jersey's "absolute litigation privilege" in this case does not conflict with a federal interest or undermine a federal right and given New Jersey's strong policy interest in the privilege, I hold that the litigation privilege is not preempted under the circumstances of this case. As a result, Knight and Absolute cannot assert an unfair competition claim against the Attorney Defendants, based solely on the Attorney Defendants' demand letters. Accordingly, I will grant the Attorney Defendants' motion for summary judgment on the unfair competition claim.

The Defendants' New Jersey Consumer Fraud Act ("CFA") claim requires the Court to address the applicability of the CFA to attorneys as well as investments in start-up companies. I find that under New Jersey law attorneys are not per se excluded from liability under the CFA. Rather, a determination of whether the CFA applies to any professional requires a weighing of various factors, including an evaluation of the applicable standards governing the conduct of the professional. I need not address whether the CFA applies to the attorneys in this case, however, because I conclude that the CFA is not applicable to investments in start-up companies. Consequently, I will grant the Attorney Defendants' motion for summary judgment on the CFA claim.

I will deny the Attorney Defendants' motion for summary judgment on the common law fraud claim. I find that a genuine material question of fact exists as to whether Moser knew or should have known that Waterloov's gutters are ineligible for foreign patent protection. I also find that a material question of fact exists as to whether Moser made any representations to Knight about foreign patent availability and whether Knight relied on any such representation.

Finally, I will grant the Attorney Defendants' motion for summary judgment on the attorney malpractice claim. Under New Jersey law, a party alleging attorney malpractice must provide expert witness testimony to establish the duty of care against which the attorney's actions are to be measured. Because the Defendants have not provided sufficient expert testimony and because the standard of care applicable to this case is not so basic or obvious that expert testimony is unnecessary, the Attorney Defendants are entitled to summary judgment.

I. Factual and Procedural History

Some of the procedural and factual history of this case has already been recounted in this Court's opinion in a related action. See Thomason v. Lehrer, 182 F.R.D. 121, 123-24 (D.N.J.1998). What follows below describes the facts and procedural history relevant only to the summary judgment motion currently before the Court.

On May 16, 1997, Waterloov filed a Complaint alleging patent infringement by Absolute and Knight, Absolute's owner. In particular, Waterloov alleged infringement of United States Patent No. 4,411,110 (the "'110 patent"), of which Waterloov is the exclusive licensee. See Compl. ¶¶ 7, 9-11 (dated May 15, 1997).

According to a Declaration submitted by Kuhns, Knight once sold Waterloov products as an authorized dealer and manufacturer representative. See Kuhns Decl. ¶ 7 (dated May 14, 1997). Knight terminated this relationship in a letter to Kuhns in 1996. See id. at ¶¶ 7-8. Kuhns alleges that Knight then went into business for himself, manufacturing, marketing and selling "Gutter ProTech," a gutter Kuhns claims infringes the '110 patent. Id. at ¶¶ 5-6. Kuhns further accuses Knight of co-opting Nelson Sensenig ("Sensenig"), a onetime supplier of gutter components to Waterloov and a successful former Waterloov dealer, into an exclusive supplier-dealer relationship with Absolute. See id. at ¶¶ 9, 13, 15. Finally, Kuhns asserts that Knight lured Ray Vandergrift ("Vandergrift"), another former Waterloov dealer, into the Absolute stable. See id. at ¶¶ 18.

Waterloov amended its Complaint on July 16, 1997, joining Sensenig and Vandergrift as Defendants, et alia. See Am. Compl. ¶¶ 4, 6 (dated July 15, 1997). Waterloov noted in the Amended Complaint that it had sent letters, dated March 20, 1997, to Sensenig and Vandergrift, giving them notice of their infringement. See id. at ¶ 27.

Absolute and Knight filed an Answer, Affirmative Defenses and Counterclaims in response, denying Waterloov's allegations and asserting claims for declaratory relief. In Count I of their Answer, Affirmative Defenses and Counterclaims, they demanded that the '110 patent be declared invalid and uninfringed. See Answer, Affirmative Defenses and Counterclaims Ct. I (dated July 29, 1997) (hereinafter "Answer I"). They also sought declaratory judgments that Patent Nos. 5,216,851 and 5,339,575 ("the '851 patent" and "the '575 patent") were invalid, unenforceable, and uninfringed. See id. Cts. II-III. These patents relate to the same general technical area as the '110 patent, rain gutter covers and roof line protectors. See id. at ¶ 60; Att'y Defs.' Br. Supp. Summ. J. at 2 (filed Feb. 26, 1999).

Absolute and Knight also asserted Counterclaims against a number of parties who had not yet been joined to the action: Kuhns and the Attorney Defendants, Thomason, Moser, Wall, and Thomason & Moser (hereinafter collectively "Additional Counterclaim Defendants"). See id. at ¶¶ 46-51.¹ Count IV of these Counterclaims accused Waterloov and the Attorney Defendants of unfair competition for having sent the above mentioned letters to Sensenig and Vandergrift, et alia, threatening enforcement of their rights in the '575 and '851 patents. See id. at ¶¶ 75-78.

Waterloov filed a motion to sever and dismiss the claims asserted against the Additional Counterclaim Defendants, and in an Unpublished Opinion and Order, this Court granted the Plaintiff's Motion with respect to three of the Defendants' nine Counterclaims, finding that because they were directed exclusively at the Additional Counterclaim Defendants and not at all at the Plaintiff, the Additional Counterclaim Defendants could not be properly joined pursuant to Rules 13(h), 19, and 20 of the Federal Rules of Civil Procedure. See Op. and Order (dated Mar. 31, 1997)....