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General Security, Inc. v. APX Alarm Security Solutions

August 25, 2009

GENERAL SECURITY, INC., PLAINTIFF,
v.
APX ALARM SECURITY SOLUTIONS, INC. AND APEX ALARM, LLC., DEFENDANTS.



The opinion of the court was delivered by: David N. Hurd United States District Judge

MEMORANDUM-DECISION and ORDER

I. INTRODUCTION

Plaintiff General Security, Inc. ("plaintiff") brings a diversity suit against defendants APX Alarm Security Solutions, Inc. and Apex Alarm, LLC ("defendants"). Plaintiff seeks compensatory and punitive damages for tortious interference with contract and business relations (claims 1 and 2), false representation in violation of § 43(a) of the Lanham Act (claim 4), product disparagement (claim 5), unfair competition (claim 6), and slander (claim 7). Plaintiff also seeks injunctive relief enjoining defendants from soliciting business from its customers through false statements and other misrepresentations (claim 3). Defendants are represented by the same counsel and move to dismiss plaintiff's complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Plaintiff opposes and cross-moves for leave to amend its First Amended Complaint. Defendants oppose plaintiff's cross-motion. Oral argument was heard on August 14, 2009 in Utica, New York. Decision was reserved.

II. BACKGROUND

Plaintiff is a mid-size home security company with its principal place of business in Plainview, New York. Plaintiff's business also includes home security services offered by one of its sub-divisions, Sentinel Security. On August 10, 2007, plaintiff filed a lawsuit for tortious interference and injunctive relief in the Eastern District of Virginia in response to reports that the defendants were soliciting its customers in Richmond, Virginia. Plaintiff's Virginia lawsuit was dismissed for lack of subject matter jurisdiction after failing to plead the specific citizenship of each member of the limited liability company (See Order, Ex. A to Defs'. Reply Aff., Dkt. No. 30-3.) Plaintiff filed its present lawsuit on August 27, 2008 and, with defendants' consent, filed an amended complaint on December 10, 2008.

The following factual allegations are accepted as true for purposes of defendant's Rule 12(b)(6) motion. On or about May 10, 2007, one of plaintiff's customers in Richmond, Virginia, Lucy Scott, indicated she wished to cancel her contract with plaintiff because defendants had falsely informed her that plaintiff's system would not be operational beginning in January of 2008. Although defendants' employees also told Ms. Scott that they were merely upgrading plaintiff's home security equipment to ensure that it would function after January 2008, defendants had actually installed their own alarm system and removed plaintiff's hardware.

On or about May 16, 2007, defendants engaged in the same pattern of conduct with another of plaintiff's Virginia customers, Ruby Sykes. Defendants informed Ms. Sykes that plaintiff's alarm system would cease operating in January 2008, told her they were only upgrading plaintiff's equipment, and replaced plaintiff's alarm system with their own equipment.

In August of 2008, defendant's representatives contacted Julie Frisillo, one of Sentinel Security's customers in Utica, New York. Defendants told Ms. Frisillo that her home security system was no longer working properly, that they had purchased Sentinel Security, that Sentinel Security had "left town," and that the home of one of Sentinel Security's customers had recently been broken into whereupon burglars slit the throat of the customer's dog. Defendants thereafter replaced the Sentinel Security alarm system with their own hardware. However, after Ms. Frisillo later confronted defendants about the veracity of their statements, defendants agreed to reimburse her for the cost of removing her Sentinel Security equipment.

The following events are alleged to have occurred after December 10, 2008 and are stated for the first time within plaintiff's proposed second amended complaint (See Pl's. Second Proposed Am. Compl., Dkt. No. 29, ¶¶ 23-48). From between May 13, 2009 and July 7, 2009, defendants' representatives contacted five of plaintiff's customers on separate occasions and misled each of them to believe, among other things, that burglars were cutting phone lines to circumvent plaintiff's alarm systems, that the defendants were the only companies capable of installing cellular back-up systems, that the defendants were working with local police, and, in one instance, that their neighbor had recently been killed during a break-in because plaintiff's home security system failed. Due to these misrepresentations, each customer agreed to replace plaintiff's home security equipment with defendants' alarm system. Afterwards, plaintiff incurred costs to re-install its alarm hardware.

III. DISCUSSION

A. Plaintiff's Cross-Motion to Amend its Complaint

Following service of the opposing party's answer, a plaintiff will be permitted to amend its complaint when justice so requires. See FED. R. CIV. P. 15(a)(2). "Rule 15(a) of the Federal Rules of Civil Procedure instructs courts that leave to amend should be freely given . . . " so long as the proposed amendment would not be futile. City of New York v. Smoke-Spirits.com, Inc., 541 F.3d 425, 452 (2d Cir. 2008) (citations omitted). Whether leave to amend should be granted is within the discretion of the trial court, and a number of factors may be considered, including undue delay, bad faith, repeated failure to cure pleading defects with previous amendments, and undue prejudice to the opposing party. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 230 (1962).

Plaintiff was previously afforded one opportunity to amend its pleadings. (See Stipulation, Dkt. No. 14.) Plaintiff's present cross-motion is therefore a third attempt to plead factual allegations giving rise to the seven stated causes of action. Plaintiff's proposed amendments seek to include additional instances in which defendants allegedly made misrepresentations to plaintiff's customers and a more particular pleading of the damages plaintiff incurred as a result of defendants' actions. (See Pl's. Proposed Second Am. Compl., Dkt. No. 29 ¶¶ 18, 23-51.)

The interest of justice warrants allowing plaintiff to amend its complaint to include events alleged to have occurred after the filing of the first amended complaint. To decide otherwise would unfairly bar plaintiff from recovering damages for events that could not have been pled in the first amended complaint because those events had not yet occurred. With respect to the more particularized damages, defendants do not point to any reason other than the fact that plaintiff was already afforded a prior opportunity to amend its complaint in support of its argument to deny plaintiff's cross-motion. Defendants have not indicated how plaintiff's proposed second amended complaint would result in undue prejudice or that it is the product of a dilatory motive. Significantly, all but one of the instances in which plaintiff pleads more specific damages relate to events which allegedly occurred after the filing of its first amended complaint. Therefore, in light of the decision to allow plaintiff to plead the additional allegations which occurred after December 10, 2008, it logically follows that plaintiff must also be permitted to plead the damages corresponding to those new factual assertions. Although it is a separate issue whether these damages are pleaded sufficiently to state cognizable claims, plaintiff will be granted leave to amend and defendants' motion to dismiss will be considered pursuant to the additional allegations stated in plaintiff's proposed second amended complaint.

B. Defendants' Motion to Dismiss

The allegations in the complaint are accepted as true when considering a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). See Grandon v. Merrill Lynch & Co., 147 F.3d 184, 188 (2d Cir. 1998). A cause of action will be dismissed for failure to state a claim only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson 355 U.S. 41, 45-46, 78 S.Ct. 99, 102 (1957). The Supreme Court warned against the literal interpretation of the phrase, "no set of facts," and explained that while the Court "do[es] not require heightened fact pleading of specifics," the plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974 (2007).

Defendants move pursuant to Rule 12(b)(6) for dismissal of plaintiff's claims for tortious interference, product disparagement, unfair competition, and slander. Accordingly, plaintiff's claims for false representations in violation of § 43(a) of the Lanham Act and injunctive relief are not presently at issue. Defendants contend that plaintiff has failed to plead sufficient facts to support its claims for unfair competition, product disparagement, and slander. Additionally, defendants argue that the statute of limitations bars many of the factual allegations giving rise to plaintiff's claims for product disparagement, slander, and tortious interference.

1. Unfair Competition

New York law recognizes two theories of unfair competition claims: (1) "palming off" and (2) misappropriation. ITC Ltd. v. Punchgini, Inc., 9 N.Y.3d 467, 476 (2007) (citing Electrolux Corp. ...


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