United States District Court, E.D. Michigan, Southern Division
OPINION & ORDER GRANTING IN PART AND DENYING IN
PART PEONY'S MOTION FOR SUMMARY JUDGMENT (DOC.
F. Cox United States District Judge
case involves a dispute between two companies that publish
pricing information relating to the scrap metal industry.
Plaintiff Scrappost, LLC (“Scrappost”) asserts
that Defendant Peony Online Inc. (“Peony”)
fraudulently accessed Scrappost's private listings and
subsequently harassed subscribers until they agreed to stop
subscribing to Scrappost. Scrappost's second amended
complaint includes claims for business defamation, injurious
falsehood, intentional interference with business expectancy,
and fraudulent misrepresentation.
before the Court is Peony's Motion for Summary Judgment.
(Doc. # 55, Peony Br.). Scrappost has responded to the motion
(Doc. # 63, Scrappost Resp.), and Peony has replied. (Doc. #
66, Peony Reply). The Court finds that oral argument would
not significantly aid in the decisional process and therefore
orders that the instant motion will be decided upon the
briefs. See E.D. Mich. LR 7.1(f).
reasons that follow, the Court shall GRANT IN PART and DENY
IN PART Peony's Motion for Summary Judgment. The Court
shall GRANT Peony's motion to the extent that it seeks
dismissal of Count I (business defamation), Count II
(Injurious Falsehood), and Count IV (Fraudulent
Misrepresentation). However, Peony's motion is DENIED to
the extent that it seeks dismissal of Count III (Tortious
Interference with Business Expectancy).
Factual Background 
purpose of the Scrappost business is to connect scrap metal
buyers and sellers in order to enable the direct transaction
of business in one forum. (Doc. #53 at ¶ 3; Doc. #65 at
¶ 3). Scrappost's website, which went live in
September 2013, provides “an online marketplace for
scrap [metal] dealers, brokers and consumers - offering a
single destination to easily get scrap market news, commodity
pricing and real time offers to buy/sell scrap
materials.” (Doc. # 53 at ¶ 1; Doc. # 65 at ¶
1). Scrappost considers itself to be a
“Craigslist” type of business for the scrap metal
industry. (Ex. B to Doc. # 53 at 25).
is also in the business of publishing pricing information
relating to the scrap metal industry. Peony has offered its
subscribers a Consumer Broker Exporter's
(“CBE”) report since 1993. (Doc. # 53 at ¶
11; Doc. # 65 at ¶ 11). The CBE report is a single-page,
daily report that contains 70 price quotes for several scrap
metal varieties. The purpose of the CBE report is to provide
buyers and sellers of scrap metal with price information.
(Doc. # 53 at ¶ 16; Doc. # 65 at ¶ 16).
2014, Peony began offering the Instant Quote
(“IQ”) service. Similar to Scrappost, Peony IQ
provides subscribers with the ability to directly post scrap
metal for sale. In order to subscribe to the IQ service,
subscribers were required to sign an exclusivity provision
contained within IQ's subscriber agreement. (Peony's
Stmt. ¶¶ 3-4; Scrappost's Stmt. ¶¶
3-4). The exclusivity provision reads:
Subscriber agrees to list his or her materials and prices on
Peony Instant Quote exclusively. Subscriber agrees not to
list any prices in a similar fashion (i.e., along with his or
her name, company name and contact information) on any other
web sites or price reports, except on Peony.s [sic] CBE and
subscriber.s [sic] own web site, during his or her
subscription to Peony.s [sic] CBE/Instant Quote.”
(Ex. 2 to Peony Br.).
co-president, Vivian Ge, has testified that Peony has not
taken any action against Peony subscribers for violating the
exclusive listing provision and that Peony would never take
such action. (Ex. A to Scrappost Resp. at 65-69). Moreover,
Peony co-president Ganru Ge has testified that Scrappost
coming into existence was one reason why Peony IQ was
created. (Ex. B to Scrappost's Resp. at 194). Ganru Ge
also testified that one of the reasons for the exclusivity
provision was to prevent third-parties from trying to enter
into relationships with Peony subscribers. (Id. at
Events Giving Rise To Instant Action
to Scrappost, Peony relies on its exclusivity provision as
pretext to call and harass Scrappost subscribers until the
subscribers stop listing on Scrappost's website. Peony
admits that it called Peony subscribers that were also
listing on Scrappost's website. However, Peony asserts
that it was justified in taking the actions that it did
because Peony believed that Scrappost was stealing
order to monitor Scrappost's private listings, and to
contact Peony subscribers who were also listing on Scrappost,
Peony obtained access to the non-public portion of
Scrappost's website by asking Jimmy Chen (owner of
Greentex) to subscribe to Scrappost. (Ex. 13 to Peony's
Br. at 53-54). Greentex would then provide Peony with the
daily emails that Scrappost sent to Greentex. (Ex. 1 to
Peony's Br. at 183-84). These emails contained customer
contact information and price information. (Id. at
Zoltan Badau began receiving the Scrappost emails on a daily
basis. (Ex. K to Scrappost Resp. at 54). Badau testified that
he was responsible for checking which of Peony's
subscribers were also listing on Scrappost's website.
(Id. at 55). Badau explained that IQ subscribers
were subject to an “exclusive contract” and that
their listings on Scrappost constituted a breach of the
contract. (Id. at 57). Although he could not recall
the details of his conversations, Badau admitted that it was
his practice to continue to call Peony IQ subscribers until
the subscribers removed their listings from Scrappost's
website. (Id. at 70-71). Badau acknowledged that
there were some subscribers that he called anywhere from 5-10
times and some as many as 10 or more times. (Id. at
addition to IQ subscribers, Badau testified that he also
called Peony CBE subscribers. (Id. at 66-68). These
subscribers were not subject to any exclusivity provision,
but he called to ensure that the subscribers were aware that
their listings were posted on Scrappost's website.
(Id.). Peony stopped accessing the private listings
in January 2016 because Scrappost terminated the Greentex
account. (Ex. B to Scrappost Resp. at 186).
MadDog's Acquisition of Scrappost
October 31, 2015, MadDog Technology paid $200, 000 to acquire
a 50% ownership interest in Scrappost. (Peony Stmt. ¶
14; Scrappost Stmt. ¶ 14). At the time of MadDog's
acquisition, Scrappost had approximately 500 subscribers.
(Peony Stmt. ¶ 15; Scrappost Stmt. ¶ 15). After
MadDog's acquisition, Scrappost's subscriber count
fell by approximately 50%. (Peony Stmt. ¶ 22; Scrappost
Stmt. ¶ 22).
investigation into Scrappost's “market
potential” was subsequently initiated. (Ex. 5 to Peony
Br. at 58). Scrappost began a “calling campaign”
to determine whether or not Scrappost would want to start
hiring salespeople or whether it should invest first.
(Id.). With respect to Scrappost's brokerage
offering, Scrappost concluded that it needed to
“innovate.” (Id. at 65). With respect to
Scrappost's subscription offering, Scrappost concluded
that it needed to determine the reason for, and effect of,
Peony's actions. (Id.). The value in
Scrappost's subscription potential was substantially
reduced and Scrappost did not want to hire people to sell
subscriptions while the instant lawsuit was pending.
(Id. at 66). However, Scrappost still hired an
additional employee to sell into the subscription market.
(Ex. I to Scrappost Resp. at 40).
Scrappost's Subscription Count
business model is “software as a subscription, ”
wherein Scrappost derives revenue from the annual or monthly
subscription fees it charges to users of its website. (Ex. D
to Doc. # 53 at 163). Scrappost offers monthly or yearly
subscriptions, however a majority of its paying subscribers
subscribe on a month-to-month basis. (Ex. 3 to Peony's
Br. at 19-21, 24). Scrappost has also offered free trials to
subscribers. (Ex. E to Scrappost Resp. at 61).
alleges that it lost subscriptions as a result of Peony's
actions. The following is an overview of Scrappost's
year-to-year subscriber count. (See Ex. F to
September 2013 and September 2014, Scrappost's subscriber
count grew from 0 to 306. (Id.). Between September
2014 and September 2015, Scrappost's subscriber count
grew from 306 to 501. (Id.). Between September 2015
and May 2016, Scrappost's subscriber count decreased from
501 to 304. (Id.). Since September 2013 through May
2016, Scrappost has had 766 subscription cancellations and it
has experienced a cumulative “churn” (a term used
to describe subscription cancellations) of 72%.
Newman testified that he spoke to some of Scrappost's
former subscribers regarding their reasons for leaving
Scrappost. Newman believes that the subscribers he
spoke to stopped listing on Scrappost as a result of
Peony's phone calls. (Ex. 10 to Peony's Br. at 105).
Newman also assumes that the subscribers he did not speak to
left as a result of Peony. (Id.).
Rosen, one of Scrappost's principals, testified that he
believed the decline in subscriber count can be attributed to
a number of things, including: a more difficult market and
Peony's actions. (Ex. 11 to Peony's Br. at 42-43).
support its claim for damages, Robert Cell (managing director
of MadDog Technology) created a valuation summary as to
Scrappost. Cell claims that Scrappost's valuation has
been eroded as a result of Peony's actions.
Scrappost's damages can be quantified in two ways: (1)
the degradation of new customers who would have joined
Scrappost but for Peony's conduct; and (2) the churn/loss
of existing customers. (Ex. I to Scrappost Resp. at 36).
estimates that Scrappost would have reached 3, 400
subscriptions, rather than 1, 200 subscriptions, had Peony
not interfered with Scrappost's business relationships.
(Id.). Cell further estimates that 50-75% of
Scrappost's churn is attributed to Peony, which ...