Opinion
Civil Action No. 3:00-CV-1681-D
July 5, 2001
MEMORANDUM OPINION AND ORDER
Plaintiffs-counterdefendants Joel Levin ("Levin") and Levin Associates, Co., L.P.A. ("LAL") ("plaintiffs") sue defendants-counterplaintiffs Friedman, Driegert Hsueh, L.L. C. ("FDH"), Lawrence J. Friedman ("Friedman"), Joy Phillips ("Phillips"), Amoree I, Ltd. ("Amoree I"), and/or Amoree, L.L.C. ("Amoree") ("defendants") for breach of contract, fraud, conversion, and civil theft. Defendants move to dismiss under Fed.R.Civ.P. 12(b)(6) based on lack of capacity to sue and standing, and under Rule 9(b) for failure to plead fraud with specificity. They move alternatively for a more definite statement concerning the fraud claims and also seek leave to enlarge time and file further pleadings. Plaintiffs move to enforce a stipulation contained in the parties' joint scheduling proposal. For the reasons that follow, the court grants defendants' motion for leave to enlarge time and file further pleadings, grants in part and denies in part their motion to dismiss, grants in part and denies in part their motion for more definite statement, and denies plaintiffs' motion to enforce stipulation.
I
Plaintiffs allege that they entered into two co-counsel agreements with FDH and Friedman. The first involved the representation of the Moreland family in a medical malpractice suit. The second concerned the representation of Universal Image, Inc. in a suit against Yahoo, Inc. and others. Under the Moreland co-counsel agreement, Levin loaned $ 150,000 to FDH and Friedman. Plaintiffs allege that FDH and Friedman failed to secure the loan, as mandated by the contract. They contend they are entitled to part of the multimillion dollar settlement that the Morelands obtained. Under the terms of the Universal co-counsel agreement, LAL advanced in excess of $49,000 in expenses to prosecute the case. Plaintiffs allege that the funds disappeared from the litigation account without a satisfactory explanation from FDH or Friedman. In addition to these co-counsel agreements, LAL entered into a real estate loan agreement with Friedman, Phillips, Amoree I, and Amoree. Under this loan ("the original loan"), plaintiffs provided $150,000 to the borrowing defendants via a second lien note. Defendants pledged to secure the loan by giving plaintiffs a lien against the property through a second lien deed of trust. According to plaintiffs, this promised security was never delivered. Furthermore, when plaintiffs asked the borrowing defendants to cure the default, they failed to do so.In their first amended complaint ("amended complaint"), plaintiffs allege breach of the Moreland contract (first claim), breach of the Universal contract (second claim), breach of the loan agreement (third claim), fraud in the Moreland matter (fourth claim), fraud in the original loan (fifth claim), conversion in the Universal matter (sixth claim), and civil theft in the Universal matter (seventh claim). Defendants move for dismissal of the first and fourth claims on the grounds that Levin lacks standing to sue on the Moreland contract. Similarly, they request dismissal of the second, sixth, and seventh claims as to both plaintiffs for lack of standing under the Universal contract. Finally, they contend that the fourth and fifth claims do not meet the pleading requirements of Rule 9(b).
II
The court begins by addressing two procedural matters.
A
In their March 5, 2001 motion to dismiss, defendants moved to dismiss all seven claims brought by LAL on the ground that it had failed to continue in existence as a legal entity, thereby lacking capacity to sue or be sued under Rule 17(b). When defendants discovered that information that they had relied on from the website and office of the Ohio Secretary of State was misleading (due to a typographical error in the state records) and their reliance incorrect, defendants filed on April 10, 2001 a withdrawal of portions of their motion to dismiss and a motion for leave to enlarge time and file further pleadings. Plaintiffs oppose the withdrawal on the ground that defendants' motion to dismiss is in fact a motion for summary judgment, which they contend may not be withdrawn without leave of court. They argue that leave to withdraw the motion should be denied because defendants filed it initially as part of a pattern of delay, harassment, and contempt for court rules. Plaintiffs also maintain in response to the motion to dismiss that because the motion includes appended materials, the court should convert it to a motion for summary judgment. See Ps. Br. at 15 (citing Burns v. Harris County Bail Bond Bd., 139 F.3d 513, 517 (5th Cir. 1998)).
Defendants' motion to dismiss is not a motion for summary judgment because defendants do not expressly seek summary judgment, and the court need not, as it explains below, convert the motion to one. Defendants have withdrawn part of their motion to dismiss because they no longer dispute that LAL has the proper corporate status to maintain this action. Accordingly, the court recognizes that defendants have withdrawn the portions of their motion to dismiss that challenge LAL's capacity to sue.
Although plaintiffs' arguments are primarily directed at defendants' inclusion of appended materials in support of their motion to dismiss LAL's claims for lack of capacity to sue, they seek conversion of the motion as to all of defendants' arguments except the motion for a more definite statement. The remaining issues that are not subject to withdrawn parts of the motion to dismiss include only standing and the specificity with which plaintiffs have pleaded their fraud claims. Standing is a jurisdictional issue, and "an inquiry into the existence of a party's standing usually should be governed by the standards controlling explorations into a court's subject matter jurisdiction." Barrett Computer Servs. v. PDA, Inc., 884 F.2d 214, 219 (5th Cir. 1989). "In this circuit `it is well settled that subject matter jurisdiction determinations, unlike summary judgment decisions' may be made using any one of the following bases: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidence in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of such disputed facts." Id. (internal quotations omitted). Because the standing inquiry in the present case does not implicate the merits of plaintiffs' claims, the court need not convert the motion to dismiss into a motion for summary judgment. See Lewis v. Knutson, 699 F.2d 230, 238 n. 10 (5th Cir. 1983) (noting that motion attacking standing was properly labeled motion to dismiss under Rule 12(b) rather than motion for summary judgment). The court will instead consider the pleading to be a motion to dismiss and will base its decision on the complaint and on undisputed evidence supplied by plaintiffs in response to defendants' motion.
Defendants did not include appended materials related to their motion for a more definite statement. Plaintiffs do not appear to argue that the court should convert this part of the motion. The court will therefore consider the motion under Rule 12(e).
B
Defendants move for leave to enlarge time and file further pleadings, contending they did not file responsive pleadings with respect to LAL because they sought dismissal based on its lack of corporate standing. Having considered defendants' motion and plaintiffs' opposition, the court concludes that this relief should be granted and that it is consistent with recognizing the validity of defendants' withdrawal of portions of their motion to dismiss. Accordingly, defendants shall have 20 days after plaintiffs' file their second amended complaint to move, answer, or otherwise plead to the claims of LAL asserted in that pleading.III
The court now turns to the merits of defendants' arguments.
A
Defendants maintain that Levin lacks standing to assert the first and fourth claims because he is not personally a party to the co-counsel agreement in the Moreland matter. Plaintiffs have submitted a copy of the Moreland co-counsel agreement, which bears Levin's personal signature. Ps. App. 15. The agreement demonstrates, however, that Levin signed it in his capacity as a representative of LAL, not in his individual capacity. As such, the face of the document shows that he is not a party to the contract. See Allied Chem. Corp. v. DeHaven, 752 F.2d 155, 158 (Tex.App. 1988, writ denied). He therefore lacks standing to enforce the contract. See Young Ref. Corp. v. Pennzoil Co., ___ S.W.3d ___, 2001 WL 361462, *5-*6 (Tex.App. Apr. 12, 2001, n.w.h.). The breach of contract action that Levin asserts in the first count of the amended complaint is dismissed.
Levin's lack of standing does not justify dismissal of the entire claim under Rule 17 because LAL, the real party in interest, is properly a party. LAL's presence, however, does not create standing in individuals who are not parties to the contract. The court therefore grants the motion to dismiss the first claim as to Levin, preserving LAL's right to bring the claim.
Defendants also contend that because LAL has no capacity to sue, Levin is unable to join the real party in interest. This assertion lacks merit in view of the now-withdrawn portions of the motion to dismiss that relate to LAL.
Regarding the fourth claim, Levin's lack of individual capacity to sue under the Moreland co-counsel agreement does not prevent him from suing for fraud. Under Texas law, privity is not required to establish fraud. See Ernst Young, L.L.P. v. Pac. Mut. Life Ins. Co., ___ S.W.3d ___, 2001 WL 690390, *5-*6 (Tex. June 21, 2001). Therefore, the court holds that Levin has standing to assert the fourth claim.
Accordingly, the court grants in part and denies in part defendants' motion to dismiss the first and fourth counts.
B
Defendants also argue that plaintiffs lack standing concerning the Universal co-counsel agreement. They contend the contingent fee agreement was signed by an entity called Levin, Marmaros Charmes ("LMC"). Plaintiffs maintain that defendants accepted and ratified plaintiffs as the new real parties in interest to the agreement. Defendants do not dispute these contentions. Therefore, the court denies defendants' motion to dismiss the second, sixth, and seventh claims.
C
Defendants move in the alternative for a more definite statement, contending that plaintiffs' fourth and fifth claims are not pleaded with the specificity required of fraud claims by Rule 9(b).1
Concerning the fourth claim, defendants argue that plaintiffs' allegation that FDH and Friedman falsely represented in the Moreland co-counsel agreement that Levin and Friedman would share fees equally is not supported by the co-counsel agreement itself. They also posit that plaintiffs have failed to specify the statement they contend is fraudulent, when and where the statements were made, and explain why the statement was fraudulent.
The Fifth Circuit has held that "articulating the elements of fraud with particularity requires a plaintiff to specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent." Williams v. WMX Techs., Inc., 112 F.3d 175, 177-78 (5th Cir. 1997). This requirement is to be read in light of Rule 8(a)'s insistence upon simple, concise, and direct allegations. Id. at 178.
Defendants' contention that the Moreland co-counsel agreement does not support plaintiffs' allegation that FDH and Friedman falsely represented that Levin and Friedman would share fees equally does not present a Rule 9(b) issue and does not support their request for a more definite statement. If anything, it posits a basis for relief under Rule 12(b)(6) or Rule 56. Accordingly, the court declines to order a more definite statement on this basis.
The court also holds that plaintiffs' fourth claim is, with one exception, adequately pleaded. The specific fraud allegations of this claim are set out in ¶¶ 57-62 of the amended complaint, which incorporate inter alia ¶¶ 11-25. Plaintiffs assert that "[s]pecifically, FDH and Mr. Friedman falsely represented in the Co-Counsel Agreement that Mr. Friedman and Mr. Levin would share fees equally and that Plaintiffs would be reimbursed for all costs and expenses they incurred." Id. at ¶ 25. Plaintiffs have adequately specified the statement they contend is fraudulent (Friedman and Levin would share fees equally and plaintiffs would be reimbursed for all costs they incurred), identified one of the speakers (Friedman), stated when and where the statement was made (in the Moreland co-counsel agreement), and explained why the statement was fraudulent (Friedman never intended to meet his or FDH's obligations under the agreement).
The court agrees with defendants, however, that plaintiffs' collective references to "FDH" as a speaker lack requisite specificity. Plaintiffs must therefore provide defendants a more definite statement that identifies all persons who they contend made a false representation that is the subject of the fourth claim.
2
In their fifth claim, set forth in ¶¶ 63-68 of the amended complaint, plaintiffs allege fraud based on the original loan. These allegations incorporate inter alia ¶¶ 32-37 of the pleading. Plaintiffs assert that FDH, Friedman, and Phillips misrepresented that the second lien deed of trust and second lien note would be filed and recorded. Defendants maintain that this claim does not plead the who, what, when, and how requirements and that plaintiffs have failed to allege that any change in position caused them damages.
The court holds that plaintiffs have identified the statement they contend is fraudulent (that the deed of trust and second lien note would be filed and recorded), identified two of the speakers (Friedman and Phillips), and explained why the statement was fraudulent (Amoree and Friedman never intended to meet their obligations under the loan agreement).
Plaintiffs have failed to allege when and where the statement was made. They have also failed to plead with requisite specificity the person who acted on behalf of Amoree and FDH. Plaintiffs' collective references to these entities lack requisite specificity. Plaintiffs must therefore provide defendants a more definite statement that alleges when and where the statement that the deed of trust and second lien note would be filed and recorded was made, and that identifies all persons acting on behalf of Amoree and FDH who they contend made a false representation.
Plaintiffs purport to provide this information in their responsive brief. See Ps. Br. at 21-22. They must include the information relevant to the fifth claim in the second amended complaint that the court requires today.
The court rejects defendants' contention that plaintiffs have failed to allege that any change in position caused them damages. Plaintiffs assert that they relied on misrepresentations by Amoree, Friedman, and Phillips and changed their positions as a result of such reliance, which constituted fraud, see Am. Compl. at ¶ 37, and that they suffered substantial actual damages as a result of fraud committed by FDH, Friedman, and Phillips, see id. at ¶ 67.
IV
On February 13, 2001 the court filed an order for joint proposal for scheduling order directing that "[t]he initial disclosures requirements of Rule 26(a)(1l) shall apply to this case unless Rule 26(a)(1)(E) exempts disclosure or the parties stipulate otherwise." The parties subsequently submitted a joint proposal for scheduling order that provided that the parties would serve initial disclosures under Rule 26(a)(1) "within 60 days after the issuance of a Scheduling Order." The court then entered its scheduling order, which did not explicitly address a deadline for Rule 26(a)(1) disclosures. On April 18, 2001 plaintiffs moved to enforce the stipulation contained in the joint proposal so that they would be allowed to serve their Rule 26(a)(1) disclosures by May 14, 2001.
Defendants opposed the motion on the ground that the joint proposal did not constitute a stipulation by the parties since the court did not include the agreement in the scheduling order. Defendants did not, however, object to plaintiffs' request to file the disclosures by May 14, 2001.
The court has been advised that plaintiffs filed their disclosures under Rule 26(a)(1) on May 14, 2001. Because defendants stated that they do not object to this deadline, and because neither party seeks any additional relief, the court concludes that the motion is moot. The court therefore denies the motion without prejudice.
* * *
The court grants defendants' April 10, 2001 motion for leave to enlarge time and file further pleadings, grants in part and denies in part defendants' March 5, 2001 motion to dismiss, grants in part and denies in part their alternative motion for more definite statement, and denies plaintiffs' April 18, 2001 motion to enforce stipulation. Plaintiffs must file a second amended complaint within 30 days of the date this memorandum opinion and order is filed.
SO ORDERED.