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Gallagher v. Funeral Source One Supply and Equipment Co., Inc.

United States District Court, D. New Hampshire

February 24, 2015

Robert P. Gallagher, et al.,
v.
Funeral Source One Supply and Equipment Co., Inc., et al. No. 2015 DNH 033

MEMORANDUM AND ORDER

PAUL BARBADORO, District Judge.

Robert Gallagher and his firm, Instrument Design and Manufacturing Co., sued Funeral Source One Supply and Equipment Co., Inc. and Affordable Funeral Supply, LLC for patent infringement and violation of the New Hampshire Consumer Protection Act (the "CPA"). Defendants responded with several counterclaims. This Memorandum and Order addresses plaintiffs' motion to dismiss defendants' CPA counterclaim.

I. BACKGROUND

Gallagher[1] holds a patent for a needle injector protection device. His complaint asserts that defendants infringed the patent and violated the CPA by advertising and selling counterfeit copies of his patented device.

Defendants responded with several counterclaims, one of which alleges that Gallagher violated the CPA by bringing the action "to impermissibly gain a competitive advantage against [the defendants, both] competitor[s of Gallagher]." Doc. Nos. 12 at 12, 13 at 12. Defendants support their counterclaim by referring to a settlement letter that Gallagher allegedly sent to them on June 3, 2014, after he had filed his complaint. In the letter, Gallagher demanded the names and contact information for each of defendants' purchasers, the names of defendants' owners and investors, and a payment of $20, 000 plus all legal expenses. He also asked for all information in the defendants' custody related to sales of the counterfeit injector needle drivers through online resellers. Finally, he insisted that the defendants allow him to place an advertisement in a trade publication asking any purchaser of a counterfeit injector needle driver "to come forward with any information they may have." Doc. Nos. 12 at 12, 13 at 12 (emphasis omitted).

II. STANDARD OF REVIEW

To survive a motion to dismiss for failure to state a claim, a plaintiff must make factual allegations sufficient to "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible if it pleads "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.

In deciding a motion to dismiss, I employ a two-step approach. See Ocasio-Hernández v. Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011). First, I screen the complaint for statements that "merely offer legal conclusions couched as fact or threadbare recitals of the elements of a cause of action." Id . (citations, internal quotation marks, and alterations omitted). A claim consisting of little more than "allegations that merely parrot the elements of the cause of action" may be dismissed. Id . Second, I credit as true all non-conclusory factual allegations and the reasonable inferences drawn from those allegations, and then determine if the claim is plausible. Id . The plausibility requirement "simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence" of illegal conduct. Twombly, 550 U.S. at 556. The "make-or-break standard" is that those allegations and inferences, taken as true, "must state a plausible, not a merely conceivable, case for relief." Sepúlveda-Villarini v. Dep't of Educ., 628 F.3d 25, 29 (1st Cir. 2010); see Twombly, 550 U.S. at 555 ("Factual allegations must be enough to raise a right to relief above the speculative level....").

III. ANALYSIS

Gallagher presents two arguments in support of his motion to dismiss. First, he argues that the CPA counterclaim is invalid because it depends on the June 2014 settlement letter, which, he maintains, is inadmissible under Federal Rule of Evidence 408. See Doc. No. 20-1. In the alternative, he argues that the counterclaim is "essentially [a] malicious prosecution claim[] that cannot be brought until the underlying action is resolved." Id. at 3 (internal quotation omitted). Neither argument is persuasive.

A. Rule 408

Gallagher's reliance on Rule 408 is misplaced both because it mistakes a rule of evidence for a rule of pleading and because it is based on an erroneous interpretation of the rule itself.

A motion to dismiss for failure to state a claim tests the legal sufficiency of the complaint. It does not ordinarily permit an assessment of the evidence supporting the complaint, which must instead be addressed at a later stage in the proceedings. See DiFolco v. MSNBC Cable LLC, 622 F.3d 104, 113 (2d Cir. 2010); Rader v. ShareBuilder Corp., 772 F.Supp.2d 599, 604-05 (D. Del. 2011); Abercrombie & Fitch Co. v. Fed. Ins. Co., No. 2:06-CV-831, 2008 WL 656029, at *5 (S.D. Ohio Mar. 11, 2008). In short, Gallagher's attempt to invoke Rule 408 fails because it is premature.

More fundamentally, Gallagher's argument also fails because it is based on a misreading of Rule 408. Although Rule 408 bars evidence of settlement negotiations to prove or disprove a claim under negotiation, it does not bar the admission of such evidence for other purposes. See Fed.R.Evid. 408(b) (evidence of settlement negotiations may be admitted "for another purpose, such as proving a witness's bias or prejudice, negating a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution"); see Vrico v. Pernell Oil Co., 708 F.2d 852, 854-55 (1st Cir. 1983); ...


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