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Underground Solutions, Inc. v. Palermo

United States District Court, N.D. Illinois, Eastern Division

September 22, 2014



MATTHEW F. KENNELLY, District Judge.

Underground Solutions, Inc. (UGSI) has sued Eugene Palermo, asserting claims of trade libel, interference with prospective economic advantage, interference with contract, false advertising under the Lanham Act, 15 U.S.C. § 1125(a)(1), and violation of the Illinois Uniform Deceptive Trade Practices Act (IUDTPA), 815 ILCS 510/2(a)(7)-(8). Palermo has moved to dismiss UGSI's complaint for failure to state a claim.

For the reasons stated below, the Court grants Palermo's motion in part and denies the motion in part. The Court dismisses UGSI's intentional interference with prospective economic advantage (Count 2), tortious interference with contract (Count 5), and IUDTPA (Count 3) claims, with leave to amend. The Court denies Palermo's motion to dismiss as to UGSI's trade libel (Count 1) and Lanham Act (Count 4) claims.


For purposes of the motion to dismiss, the Court accepts as true the following facts alleged in UGSI's complaint. UGSI is a Delaware corporation with its principal place of business in California. Compl. ¶ 14. UGSI sells and develops fusible polyvinyl chloride (PVC) pipe, which is used "in water and wastewater pipeline applications, as well as for conduit for electrical and fiber optic applications." Id. ¶ 1. UGSI is "the sole supplier of thermally buttfused PVC pipe in the United States." Id. ¶ 15.

Palermo is a Tennessee resident. Id. ¶ 17. UGSI alleges that Palermo was hired to act as a paid spokesperson for its competitor, Performance Pipe. Id. ¶¶ 8-9, 22. Performance Pipe manufactures high-density polyethylene (HDPE) pipe, which "was the primary pipe material utilized in trenchless water and wastewater applications prior to the introduction of Fusible PVC™ pipe." Id. ¶ 2, 17.

UGSI alleges that since October 2010, Palermo has presented false and misleading information at multiple industry conferences and has published false and misleading information on his website. Id . ¶ ¶ 10, 23-24. Those misrepresentations concern "the quality, characteristics, and reliability of Fusible PVC™ pipe and thermally butt-fused PVC joints." Id. ¶ 9. UGSI alleges that Palermo disseminated false information without disclosing his affiliation with Performance Pipe, which gave the false impression that his conclusions were "based on objective scientific evidence and valid third party investigation." Id. ¶ 23. Additionally, UGSI alleges that Palermo "contacted UGSI's customers following pipeline incidents involving Fusible PVC™ pipe and told the customers that the Fusible PVC™ pipe and/or thermally butt fused PVC joints caused the incident, despite Palermo's failure to conduct a thorough and complete investigation of the cause of such pipeline incidents." Id. ¶ 11.

UGSI claims that it suffered damage as a result of Palermo's misrepresentations. Specifically, UGSI alleges that "existing and prospective customers have been deterred from buying UGSI's products." Id. ¶ 46. UGSI also claims that its pipes were being considered for upcoming projects but that Palermo's statements dissuaded potential purchasers. Id. ¶¶ 52-53. UGSI alleges that its pipes were "excluded from consideration by at least two consulting engineering firms based in Illinois that design water and wastewater treatment projects and recommend pipe materials to municipal, commercial, and industrial customers." Id. ¶¶ 34-36. The complaint quotes e-mails UGSI received from two consulting engineers who expressed hesitation about using UGSI's pipes after reading Palermo's reports. Id. ¶¶ 35-36. UGSI also alleges that as a result of Palermo's misrepresentations, engineers and municipalities that "had previously specified Fusible PVC™ pipe as the only acceptable material for their projects changed the specifications to include an alternate product, such as HDPE." Id. ¶ 46.

Palermo has moved to dismiss UGSI's complaint in its entirety.


When considering a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court accepts the plaintiff's allegations as true and draws reasonable inferences in the plaintiff's favor. Parish v. City of Elkhart, 614 F.3d 677, 679 (7th Cir. 2010). To survive a motion to dismiss, the plaintiff must provide "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible on its face if "the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

A. Statute of limitations

Palermo seeks dismissal on the ground that the statute of limitations expired on each of UGSI's claims before UGSI filed its lawsuit on November 21, 2013. Palermo argues that UGSI's claims are time barred because all of the claims arose in October 2010, which is when UGSI alleges that Palermo began making false statements. In response, UGSI contends that each presentation and publication after November 2010 can form the basis for liability.[1] For the reasons set forth below, Palermo is not entitled to dismissal on this basis.

1. Applicable limitations periods

As a threshold matter, the Court must determine which limitations periods apply to UGSI's claims. A district court sitting in diversity must apply the choice of law principles from the forum state to determine which state's law governs. West Bend Mut. Ins. Co. v. Arbor Homes LLC, 703 F.3d 1092, 1095 (7th Cir. 2013). The Court must therefore apply Illinois choice of law rules to determine the governing statute of limitations. In Illinois, statutes of limitation are procedural, and thus the Illinois statute of limitations applies to all claims unless the Illinois borrowing statute is triggered. See Newell Co. v. Petersen, 325 Ill.App.3d 661, 668-69, 758 N.E.2d 903, 908 (2001).

The parties do not dispute that a one-year limitations period applies to UGSI's trade libel claim under Illinois law. See 735 ILCS 5/13-201 (one-year limitations period for libel); Johnson Controls, Inc. v. Exide Corp., 152 F.Supp.2d 1075, 1078 (N.D. Ill. 2001) (applying the libel limitations period to trade libel).[2]

The parties also agree that a three-year limitations period applies to UGSI's Lanham Act and IUDTPA claims. See 815 ILCS 505/10(a)(e); Clever Ideas, Inc. v. Citicorp Diners Club, Inc., No. 02 C 5096, 2003 WL 21982141, at *13 (N.D. Ill. Aug. 20, 2003) (noting that the three-year statute of limitations from the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA) has been applied to IUDTPA claims); Johnson Controls, Inc., 152 F.Supp.2d at 1079 (noting that courts have applied the ICFA limitations period to Lanham Act claims).

The parties disagree about which limitations period applies to the tortious interference claims. Palermo argues that California's two-year limitations period applies to UGSI's interference claims, whereas UGSI argues that Illinois' five-year period applies. For the reasons stated below, the Illinois borrowing statute is triggered with respect to UGSI's interference claims. Thus California's two-year limitations period applies.

The Illinois borrowing statute applies if (1) the cause of action arises in another state, (2) the other state's statute of limitations is shorter than the Illinois period, and (3) none of the parties reside in Illinois. 735 ILCS 5/13-210; Emp'rs Ins. of Wausau v. Ehlco Liquidating Trust, 309 Ill.App.3d 730, 737, 723 N.E.2d 687, 693 (1999). The last two requirements are easily met. California's limitations period is shorter than Illinois' limitations period. Compare Cal. Civ. Proc. Code § 339(1) (two years); Kolani v. Gluska, 64 Cal.App.4th 402, 408, 75 Cal.Rptr.2d 257, 260 (1998) (applying § 339(1) to intentional interference with prospective economic advantage claim); DC Comics v. P. Pictures Corp., 938 F.Supp.2d 941, 948 (C.D. Cal. 2013) (applying § 339(1) to tortious interference with contract claim), with 735 ILCS 5/13-205 (five-year limitations period for "all civil actions not otherwise provided for"). And none of the parties reside in Illinois.

Both parties agree that the Court must apply the approach described in the Restatement (Second) of Conflicts of Law to determine where the claim arose for purposes of the borrowing statute. See Ehlco, 309 Ill.App.3d at 739, 723 N.E.2d at 694; Mitchell v. United Asbestos Corp., 100 Ill.App.3d 485, 499, 426 N.E.2d 350, 360 (1981). The parties disagree about the result of that analysis. UGSI argues that the law of the place of the injury should apply because "the complaint specifically identifies two instances where the injury was felt in Illinois' - emails from two consulting engineering firms in Illinois who expressed concern with UGSI's Fusible PVC® pipe after reviewing Palermo's false statements." Pl.'s Resp. to Def.'s Mot. to Dismiss at 4. Palermo argues that California law should apply because UGSI's principal place of business is in California.

To determine which state has the most significant interest as required under the Second Restatement, the Court must apply a "two-step process in which the court (1) chooses a presumptively applicable law under the appropriate jurisdiction-selecting rule, and (2) tests this choice against the principles of § 6 in light of relevant contacts identified by general provisions like § 145 (torts).'" Townsend v. Sears, Roebuck & Co., 227 Ill.2d 147, 164, 879 N.E.2d 893, 903 (2007) (quoting P. Borchers, Courts and the Second Conflicts Restatement: Some Observations and an Empirical Note, 56 Md. L. Rev. 1232, 1247 (1997)).

Here, the applicable presumptive rule is section 151, which states that "[t]he choice-of-law rules involving injurious falsehood are the same as those involving defamation." Restatement (Second) of Conflicts of Law § 151. See also Kelco Metals, Inc. v. Morgan, No. 09 C 4476, 2010 WL 1427583, at *5 (N.D. Ill. Apr. 5, 2010) (applying section 151 to tortious interference claims involving injurious falsehood). For cases involving defamation or injurious falsehood disseminated in multiple states, there is a presumption in favor of applying the law of the plaintiff's domicile. See Kamelgard v. Macura, 585 F.3d 334, 341 (7th Cir. 2009); Rice v. Nova Biomedical ...

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