Ambassador Press, Inc. (“Ambassador”) is a Minnesota-based printing company that went to Durst Image Technology U.S., LLC (“Durst”) to buy a large format printer.
As Ambassador discussed the potential purchase with Durst, Ambassador was very concerned about the potential risk of “print head” failures (and the delay and added expense that they would cause, particularly when the printer aged out of its two-year warranty). Ambassador repeatedly sought reassurances on this point when it discussed the potential printer purchase with Durst.
In response to Ambassador’s concerns, Durst boasted relatively low printer head failure rates and suggested that somewhat higher failure rates, when they occurred, were due to misuse or poor maintenance practices by the purchasers. But Durst related that, “For printers with more than one year in service, one unit had no print head replacements, two units had one replacement, and three units had two replacements.”)
Ambassador, relying on these representations, bought the Durst printer. “Ambassador alleges that the printer has thus far required 54 replacement print heads, only 11 of which were covered by warranty. Ambassador claims to have paid over $260,000 for the 43 heads that failed after the warranty expired.”
On these facts, do you think that Ambassador has a viable fraud claim against Durst?
Judge Ericksen ruled that Ambassador failed to meet its requirement to plead fraud with particularity. That is, simply alleging that Durst’s reassurances, in hindsight, were inconsistent with Ambassador’s experience with the Durst printer does not mean that Durst was lying. Maybe all of Durst’s statements about its past experience with the printers were true? Maybe Ambassador just was unlucky?
Also, Judge Ericksen decided that Ambassador had not adequately pled reliance. Yes, to be sure, the allegations were that Ambassador was extremely concerned about printer-head failure rates and the related cost. And, to be sure, Durst directly addressed those concerns and sought to minimize them. And, it seems a very quick and short inference that Ambassador’s purchase decision was in part owing to Durst’s reassurances. Even so, Judge Ericksen suggested that Ambassador’s complaint failed to plead reliance with sufficient specificity.
We learned this week that Ambassador will be taking Judge Ericksen’s grant of Durst’s motion to dismiss up on appeal to the U.S. Court of Appeals for the Eighth Circuit.
As we read Ambassador’s complaint, we, like Ambassador, cannot know whether Durst’s representations about historic printer head replacement rates were true or false. We can and do know that Ambassador’s experience with Durst printer head replacements was wildly inconsistent with Durst’s representations. We’ll be interested in learning whether the Eighth Circuit will agree with Judge Ericksen’s application of the “particularity” standard or whether it will adopt a less stringent pleading requirement.