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Scrappost LLC v. Peony Online, Inc.

United States District Court, E.D. Michigan, Southern Division

March 24, 2017

Scrappost, LLC, Plaintiff/Counter-Defendant
v.
Peony Online, Inc., Defendant/Counter-Plaintiff

          OPINION & ORDER GRANTING IN PART AND DENYING IN PART PEONY'S MOTION FOR SUMMARY JUDGMENT (DOC. #55)

          Sean F. Cox United States District Judge

         This 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.

         Currently 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).

         For the 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).

         BACKGROUND

         A. Factual Background [1]

         1. The Parties

         The 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).

         Peony 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).

         In 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.).

         Peony's 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 211).

         2. Events Giving Rise To Instant Action

         According 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 Peony's information/subscribers.

         In 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 184).

         Peony's 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 69-71).

         In 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).

         3. MadDog's Acquisition of Scrappost

         On 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).

         An 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).

         4. Scrappost's Subscription Count

         Scrappost's 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.[2] (Ex. E to Scrappost Resp. at 61).

         Scrappost 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 Scrappost Resp.).

         Between 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%. (Id.).

         Matthew Newman testified that he spoke to some of Scrappost's former subscribers regarding their reasons for leaving Scrappost.[3] 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.).

         Sanford 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).

         5. Damages

         To 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).

         Cell 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 ...


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