MEMORANDUM OPINION
This matter comes before the Court on the motion of defendant to dismiss Counts I and II of plaintiffs Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons stated in this Memorandum and Order, the Court will grant the motion to dismiss.
BACKGROUND
Plaintiff Braceo Diagnostics Inc. (“Brac-eo”) develops and markets a variety of health care products, including diagnostic imaging agents and diagnostic pharmaceutical products. (Comply 6.) Defendant Bergen Brunswig Drug Co. (“Bergen”) is a wholesaler of pharmaceuticals and other health care products. To distribute its products to end-users, Braceo sells its products to wholesalers, such as Bergen, which have warehouse and distribution facilities across the United States. The wholesalers then sell and distribute Brac-co’s products to customers, including hospitals and physicians. (Compl.lffl 1,2,6.) Since 1994, Bergen has been one of Brac-co’s wholesalers. (Id ¶ 2, 6.)
The terms governing Braeco’s sales to wholesalers are set forth in “Wholesale Distribution Agreements.” (Id. ¶ 9.) In 1995, Braceo and Bergen entered into such a Wholesale Distribution Agreement. Braceo and Bergen are parties to certain other agreements that include substantially similar terms, referred to collectively in the Complaint as “Wholesale Distribution Agreements.” (Id. ¶ 9.) The terms of the Wholesale Distribution Agreements require, among other things, that (1) Bergen purchase Braceo products exclusively from Braceo; (2) Bergen maintain accurate records of sales and returns of Braceo products; (3) Bergen report to Braceo on a monthly basis information on sales and returns of Braceo product; and (4) Bergen allow audit of its records from time to time, at Bracco’s expense, by Braceo or by a public accounting firm selected by Brac-eo. (MUIO.)
Braceo also enters into contracts with certain groups of hospitals (“contract customers”).
(Id.
¶ 11.) Those contract customers purchase Bracco’s products at a negotiated “contract price” that, in most instances, is lower than the wholesale acquisition price that wholesalers pay Brac-eo. (Id) Under the terms of the Wholesale Distribution Agreements, Bergen sells Braceo products to contract customers at the Braceo contract price. (Id) Bergen then periodically sends an electronic report to Braceo detailing sales to such contract customers and the price differential between the contract price and the higher wholesale price at which Bergen purchased the products. (Id ¶¶ 11, 12.) That price
According to the Complaint, Bergen began using the chargeback system in a “scheme to cheat” Braceo, involving two types of transactions. (Id. ¶ 14.) Braceo alleges that in the first type of transaction, Bergen failed to submit a negative charge-back when required and thus kept many unearned chargebacks. (Id. ¶ 15.) Bergen often would re-sell the returned product and submit a report to Braceo claiming a second reimbursement for the same item while failing to disclose that it (Bergen) had already received reimbursement. (Id.) That “double dipping” would result in Bergen obtaining two chargeback reimbursements for the same product. (Id.) Braceo alleges that in the second type of transaction, Bergen purchased Braceo products from sources other than Braceo in violation of the Wholesale Distribution Agreements. (Id. ¶ 16.) According the Complaint, Bergen then sold such “secondary source” goods to contract customers, and Braceo subsequently paid chargebacks to Bergen on those sales. (Id.)
Braceo filed a six-count Complaint on December 12, 2001. In addition to claims for breach of contract, Braceo asserts claims for common-law fraud (Count I) and violation of the New Jersey Consumer Fraud Act (Count II). Bergen now moves for dismissal of the fraud and statutory claims contained in Counts I and II of the Complaint pursuant to Rule 12(b)(6).
DISCUSSION
I. Standard Under Rule 12(b) (6)
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted does not attack the merits of the case, but merely tests the legal sufficiency of the complaint.
Sturm v. Clark,
In considering the motion, a district court must accept as true the facts pleaded in the complaint and any and all reasonable inferences derived from those facts.
Unger v. Nat'l Residents Matching Program,
The question before the court is not whether the plaintiff will ultimately prevail; rather, it is whether the plaintiff can prove any set of facts in support of the asserted claims that would entitle the plaintiff to relief.
Hishon v. King & Spalding,
II. Consumer Fraud Act
Bergen argues that Braceo’s claim in Count II under the New Jersey Consumer Fraud Act (“NJCFA”), N.J.S.A. § 56:8-1 to -106, should be dismissed on two grounds. First, Bergen contends that the CFA does not allow a manufacturer/seller of goods, such as Braceo, to bring an action against a purchaser/wholesaler, such as Bergen. (Mem. of Law in Supp. of Def.’s Mot. to Dismiss Counts I and II of the Compl. (“Def.Br.”) at 5-7; Def.’s Reply Br. in Supp. of Its Mot. to Dismiss Counts I and II of the Complaint (“Def. Reply Br.”) at 1-2.) Bergen maintains that a manufacturer’s sale of goods to a wholesaler or retailer, which is the transaction at issue here, is not a “consumer” transaction within the meaning of the NJCFA because the wholesaler will resell the goods rather than consume them. (Def. Br. at 6.) Second, Bergen argues that even if the present circumstances involve a consumer transaction, a seller such as Braceo lacks standing to sue under the NJCFA. (Id at 5-7.)
The NJCFA provides in relevant part: The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or real estate, or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice.
N.J.S.A. 56:8-2. The NJCFA provides a private right of action for any “person” who is harmed by such unlawful practices, N.J.S.A. 56:8-19, and defines “person” to include, among others, “any ... corporation, company, trust, business entity or association[,]” N.J.S.A. 56:8-2(d). “Merchandise” is defined to include “any objects, wares, goods commodities, services or anything offered, directly or indirectly to the public for sale.” N.J.S.A. 56:8-1.
The Court determines that Bracco’s claim under the CFA must be dismissed in accordance with prevailing authority. There is no dispute between the parties that a corporation may qualify as a “person” under the CFA when it finds itself in a consumer-oriented transaction. The character of the transaction, not the identity of the purchaser, determines whether the CFA is applicable.
J & R Ice Cream Corp. v. Cal. Smoothie Lic. Corp.,
That reasoning fails to persuade the Court. Although Braceo accurately notes that fraud in connection with the sale of services is actionable under the NJCFA, the challenged services generally must be of the type sold to the general public. The entire thrust of the NJCFA is “pointed to products and services sold to consumers in the popular sense.”
Neveroski v. Blair,
We find the court’s reasoning in
Windsor Card Shops, Inc. v. Hallmark Cards, Inc.,
can at best be characterized as promises that were implied by the [contract]. If we were to read the NJCFA as covering those “services,” we would be construing the statute to allow recovery for any breached promise in connection with a contract for the sale of merchandise. We decline to allow such a broad reading of the statute. These services, if offered, were collateral to a contract for the sale of products to a wholesaler. As such, they do not qualify Windsor as a consumer under the NJCFA.
Id. (citation omitted). That logic carries force for the present circumstances in which services were provided ancillary to a contract.
Also supporting our decision
BOC Group, Inc. v. Lummus Crest Inc.,
Because Braceo is not a “consumer” of “merchandise” within the meaning of the NJCFA, the Court concludes that the NJCFA is inapplicable to the circumstances presented in plaintiffs Complaint. Accordingly, Count II of the Complaint must be dismissed pursuant to Rule 12(b)(6).
III. Economic Loss Doctrine
Bergen argues that the economic loss doctrine bars Braeco’s common-law fraud claims because Bracco’s breach of contract claim is based on the very conduct upon which the fraud claim is based. (Def. Br. at 7; Def. Reply Br. at 2.) The economic loss doctrine “prohibits plaintiffs from recovering in tort economic losses to which their entitlement only flows from a contract.”
Duquesne Light Co. v. Westinghouse Elec. Co.,
The New Jersey Supreme Court first approved the economic loss doctrine in
Spring Motors Distributors, Inc. v. Ford Motor Co.,
Spring Motors,
however, only addressed the status of strict liability and negligence claims in a breach of contract case. “No New Jersey Supreme Court case holds that a fraud claim cannot be maintained if based on the same underlying facts as a contract claim.”
Gleason v. Norwest Mortgage, Inc.,
The question of the continuing validity of fraud claims in cases involving frustrated economic expectations is very complex and troublesome. The United States District Court for New Jersey unequivocally has held that the New Jersey Supreme Court’s reasoning in Spring Motors, though not explicitly addressing fraud claims, “leads ... to theconclusion that, as between commercial parties New Jersey will not countenance” claims for fraud other than fraud in the inducement. Unifoil Corp. v. Cheque Printers & Encoders Ltd., 622 F.Supp. 268 , 270-71 (D.N.J.1985). Spring Motors held that “as among commercial parties ... contract law, ... provides the more appropriate system [as compared to tort law] for adjudicating disputes arising from frustrated economic expectations.”98 N.J. at 581 ,489 A.2d at 673 .
Contrary to this proposition, the New Jersey Superior Court after Spring Motors has upheld fraud claims between commercial parties. See Perth Amboy Iron Works, Inc. v. American Home Assurance Co.,226 N.J.Super. 200 ,543 A.2d 1020 (App.Div.1988) [aff'd,118 N.J. 249 ,571 A.2d 294 (1990) (affirming for the reasons' stated within appellate court’s decision).] No New Jersey court, though, has explicitly considered whether these claims are barred by Spring Motors. Because we determine that plaintiff fails to allege sufficient facts to support its claim of fraud, making summary judgment proper, we decline to wade into this morass.
Gleason,
The parties agree that New Jersey federal and state decisions have held that fraud claims may co-exist with a contract-based cause of action. (Def. Br. at 9-10; Def. Reply Br. at 6; PL Br. at 14-15.) The essential dispute between the parties centers on Bergen’s contention that although New Jersey cases hold that some fraud claims may be brought in conjunction with breach of contract claims, those fraud claims that have been permitted to proceed were premised on fraud in the inducement and not fraud in the performance of a contract. (Def. Br. at 9; Def. Reply Br. at 7.) In contrast, plaintiff contends that New Jersey law permits fraud claims to stand alongside breach of contract claims regardless of whether the fraud claim is premised on fraud in the inducement or fraud in the performance of a contract. (PI. Br. at 14-17.)
The parties’ positions present a close question for the Court, as we find authority that would justify alternative outcomes in this matter. The Court concludes, however, that the economic loss doctrine does bar Bracco’s claim for common-law fraud.
The distinction between fraud in the inducement and fraud in the performance of a contract remains relevant to the application of the economic loss doctrine in New Jersey. Courts have continued to affirm “the conceptual distinction between a misrepresentation of a statement of intent at the time of contracting, which then induces detrimental reliance on the part of the promisee, and the subsequent failure of the promisor to do what he has promised.”
LoBosco v. Kure Eng’g Ltd.,
New Jersey federal and state decisions that have permitted a fraud claim to proceed with a breach of contract claim generally appear to have involved a fraud in the inducement of a contract or an analogous situation based on pre-contractual misrepresentations.
See Florian Greenhouse v. Cardinal IG Corp.,
Further, in our most recent statement recognizing the fraud-in-the-inducement and fraud-in-the-performance distinction, this District Court stated again that the “critical issue” with regard to economic loss “is whether the allegedly tortious conduct is extraneous to the contract.”
Emerson Radio Corp. v. Orion Sales, Inc.,
No. Civ. A. 95-6455,
Approximately one year ago and after the decision in
Emerson Radio,
the Third Circuit stated that “New Jersey District Courts still hold that fraud claims not extrinsic to underlying contract claims are not maintainable as separate causes of action.”
Gleason,
We also find support for our ruling is the New Jersey Supreme Court’s decision in
Alloway v. General Marine Industries, L.P.,
Unless displaced by the particular provisions of this Act, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.
N.J.S.A. 12A:1-103 (emphasis added). That citation to section 1-103, which related to “validating or invalidating” causes such as “fraud,” supports Bergen’s position that only claims for fraud in the inducement are cognizable in conjunction with action that the U.C.C. governs.
The economic loss doctrine’s underlying main purpose further moves this Court to dismiss Bracco’s common-law fraud claim. The Third Circuit most recently stated, “The economic loss doctrine is designed to place a check on limitless liability ... and establish clear boundaries between tort and contract law.”
Werwinski v. Ford Motor Co.,
Pursuant to the economic loss doctrine, the Court determines that Count I of the Complaint must be dismissed.
CONCLUSION
The Court concludes that Bergen’s motion to dismiss Count I (common-law fraud) and Count II (Consumer Fraud Act) should be granted. Those Counts of the Complaint will be dismissed.
An appropriate Order accompanies this Memorandum Opinion.
Notes
. In this case, the Court will consider decisions of the New Jersey Supreme Court, federal courts applying New Jersey law, the Appellate Division of the New Jersey Superior Court, and analogous decisions applying the law of other states in predicting how the New Jersey Supreme Court would decide questions of New Jersey law.
See, e.g., Boyanowski v. Capital Area Intermediate Unit,
. That the Third Circuit interpreted Pennsylvania law in
Werwinski
when it determined that the economic loss doctrine barred the plaintiffs fraudulent concealment claim,
. Bergen also argues Bracco's claim for fraudulent concealment in Count I of the Complaint must be dismissed pursuant to Federal Rule of Civil Procedure 9(b) in that the claim does not meet the heightened pleading standard. (Def. Br. at 11-13.) We need not address that alternative basis for dismissal of Count I in light of our conclusion that the economic loss doctrine bars that claim.
