Summary
finding a lack of a malice and dismissing claims for fraud and punitive damages, where plaintiff alleged both parties believed the defendant's products were in compliance at the beginning of the contractual relationship
Summary of this case from Metro Ready Mix, Inc. v. Essroc Cement Corp.Opinion
Civ. No. AMD 04-3988.
January 23, 2006
MEMORANDUM OPINION and ORDER
Plaintiffs, Mid-Atlantic Chemicals Corporation and Kyle Technologies, Inc., instituted this diversity case alleging three claims each against defendant Shaw Industries, Inc.: breach of contract, breach of warranty, and fraud. Plaintiffs' claims arise out of an agreement entered into by the parties whereby Shaw agreed to supply plaintiffs with carpeting that plaintiffs would in turn resell to the Washington Metropolitan Area Transit Authority ("WMATA") for use in subway cars. Now pending is defendant's motion to dismiss the fraud counts of the Second Amended Complaint. For the within reasons, the motion shall be granted.
For reasons that are not entirely clear, the plaintiffs are related corporations that, though referred to in this opinion in the plural, appear to be mere alter egos of each other. Apparently, standing issues may be lurking in the course of dealing between the plaintiffs on the one hand and defendant on the other hand, and thus both plaintiff companies are joined in this case.
A motion to dismiss under Fed.R.Civ.P. 12(b)(6) will not be granted unless a plaintiff can prove no set of facts that would support his claim and entitle him to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In considering a motion to dismiss, the court accepts as true all well-pleaded allegations and views the complaint in the light most favorable to the plaintiff. Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993).
I.
For purposes of the motion to dismiss, plaintiffs' factual allegations are presumed true. Plaintiffs are Maryland corporations located in Queen Anne's County. Second Amended Complaint ¶¶ 1-2. Defendant Shaw is a Georgia corporation with its principal place of business in Dalton, Georgia. Id. ¶ 3. Shaw is alleged to be the largest carpet manufacturer in the United States. Id. ¶ 9.On August 2, 1999, WMATA issued a solicitation for the purchase of carpet used in WMATA's railcars. Id. ¶ 13-14. Plaintiffs conducted extended discussions with Shaw for the purpose of preparing and submitting a bid to WMATA. Id. ¶ 16. In a letter dated August 31, 1999, Shaw undertook to provide to plaintiffs, at an agreed price, carpeting product meeting the specifications of WMATA's solicitation, specifically asserting that if plaintiffs were successful in obtaining the WMATA contract, Shaw would "begin work on developing an acceptable product." Id. ¶ 17; Pltfs.' Exh.1. Subsequently, in reliance upon numerous discussions between the parties and representations made by Shaw that their carpet would comply with WAMATA's specifications, plaintiffs and Shaw entered into a sales agreement. Id. ¶¶ 20-24. With the agreement in hand, plaintiffs submitted a sealed bid to WMATA. Id. ¶ 25.
Thereafter, before it opened the sealed bids, WMATA canceled the solicitation, id. ¶ 28, and initiated a revised bidding process whereby it required all suppliers interested in procurement contracts to submit certain certifications and test results on the relevant products. Indeed, WAMATA established a so-called "Qualified Products List" ("QPL"). Id. ¶ 30. In order to be placed on the QPL, products were required to meet WMATA's specifications, and suppliers were required to submit test results and samples. Id. ¶ 31. In response to WMATA's revised procedure, Shaw submitted certifications, product samples and test results to plaintiffs and WMATA and Shaw's carpet was placed on the QPL. Id. ¶¶ 32-33.
Thereafter, in what plaintiffs describe as something of a "test run" for the Shaw carpet product, plaintiffs ordered a small quantity of carpet from Shaw to be delivered to WMATA. Id. ¶¶ 35-39. Shaw filled the purchase order and invoiced plaintiffs for the delivered carpet. Id. Plaintiffs paid Shaw in full for the invoiced carpet and in turn invoiced, and was paid by, WMATA. Id. ¶ 39.
On or about March 28, 2002, WMATA issued a further solicitation, substantially identical to the initial solicitation, with respect to the type of carpet proposed to be purchased by WMATA. Id. ¶ 41. In response to the reissued solicitation, plaintiffs prepared to submit a bid to WMATA. Id. ¶ 43. Accordingly, they negotiated with Shaw an agreement to purchase the corresponding carpet at an agreed price. Id. ¶ 44. As plaintiffs prepared to submit a bid to WMATA in reliance on their agreement with Shaw, WMATA notified plaintiffs that the carpet Shaw had previously supplied had been noncompliant with the relevant specifications. Id. ¶ 46. Thereafter, in a letter dated August 9, 2002, Shaw acknowledged that Shaw's carpet failed to meet the specifications. Id. ¶ 48. As a result of this noncompliant carpet, plaintiffs were removed from WMATA's QPL. Id. ¶ 49.
Plaintiffs protested their removal from the QPL and, after discussions between all parties and reassurances from Shaw that it could provide carpet meeting WMATA requirements, WMATA agreed to restore plaintiffs to the QPL. Id. ¶¶ 49-54. Subsequently, prior to the opening of the sealed bids, representatives from WMATA, plaintiffs, and Shaw participated in a telephone conference during which it was determined that Shaw's carpet was tufted and not woven and that Shaw did not have the ability to manufacture the woven carpet required by WMATA. Id. ¶¶ 56-58. Once again, therefore, plaintiffs were removed from the QPL list and disqualified from participating in the solicitation. Id. ¶¶ 60-63.
Plaintiffs assert they would have earned a substantial profit had it won the WMATA carpet procurement contract and that their disqualification from the bidding process was solely proximately caused by Shaw's "misrepresentations" that it could provide carpet product that satisfied WMATA's specifications.
II.
Plaintiffs' fraud claim is a peculiar one. Clearly recognizing that under the unique circumstances of this case, the measure of compensatory damages, if any, to which they might be entitled (i.e., lost profits) is exactly the same whether they recover for breach of contract, breach of warranty, or "fraud," plaintiffs decline even to request an award of compensatory damages in the fraud counts of the Second Amended Complaint. Rather, they seek solely punitive damages.
In any event, in seeking to convert a simple breach of contract claim into a fraud claim, plaintiffs contend that Shaw made intentional misrepresentations to them regarding its ability to provide carpet compliant with WMATA's specifications, i.e., carpet that was woven rather than tufted, and maintained such false representations throughout the bid process. In tracking the elements of a state law claim for fraud under Maryland law, plaintiffs allege summarily that the falsity of the representation was known to Shaw, and that the representation was made for the purpose of defrauding plaintiffs, that the false representation induced reliance by plaintiffs to engage in negotiations with Shaw related to WMATA's carpet procurement process, which negotiations would not have occurred had the misrepresentation not been made, and that actual damages resulted. Furthermore, plaintiffs allege, in summary fashion, that Shaw acted with actual malice, thus justifying an award of punitive damages.
In support of its motion to dismiss, Shaw argues that plaintiffs' fraud claims should be dismissed for four distinct reasons: (1) plaintiffs fail to plead the alleged fraud with particularity as required by Fed.R.Civ.P. 9(b); (2) the facts alleged are insufficient to support a claim that Shaw intended to deceive or that it acted with actual malice; (3) plaintiffs fail to allege that Shaw's fraudulent misrepresentations proximately caused compensatory damages; and (4) plaintiffs have in substance simply re-characterized their contract and warranty claims as tort claims in order to seek punitive damages for such claims.
Shaw argues that plaintiffs merely make reference to "employees, officers and/or authorized agents" but fail to identify anyone specifically in their complaint as to who was responsible for making such misrepresentations. In failing to identify persons by name, the argument goes, plaintiffs have failed to allege facts to show an agency relationship or whether the actions or comments of the purported agents were made with actual malice. Moreover, the argument goes, if plaintiffs relied on representations by an individual not authorized to speak on behalf of Shaw or who exceeded the authority provided, Shaw could not be held vicariously liable for any representations made by such individual.
III.
Rule 9(b) requires that allegations of fraud be pled with particularity. The rule requires that facts showing "the time, place, and contents of false representations, as well as the identity of the person making the representations and what he obtained thereby." Harrison v. Westinghouse Savannah River Co., 176 F. 3d 776, 784 (4th Cir. 1999). Rule 9(b) is also to be read in conjunction with Rule 8(a), which requires a short and plain statement of the claim showing that the pleader is entitled to relief.
Here, plaintiffs have failed to allege facts with particularity in their Second Amended Complaint as required by Rule 9(b). At bottom, read in the light most favorable to plaintiffs, the alleged actionable "misrepresentation" here is that the Shaw carpeting was woven when in fact it was tufted. In view of the fact that Shaw provided samples of its product to plaintiffs (and to WMATA), it is incomprehensible how a misrepresentation can arise from the course of dealing and negotiation described by plaintiffs, at least in the absence of an allegation that Shaw provided a sample of woven product but actually substituted a tufted product upon delivery. There is no such allegation in the Second Amended Complaint.
Although plaintiffs provide considerably more facts in their Response in Opposition to Shaw's Motion to Dismiss, those allegations still fail to rise to the level sufficient to state a fraud claim under Rule 9(b). Nevertheless, those allegations are not considered because it is well-settled that a plaintiff may not amend a complaint through a memorandum opposing a motion to dismiss. See Zachair, Ltd. v. Driggs, 965 F.Supp. 741, 748 n. 4 (D.Md. 1997) (noting that a plaintiff "is bound by the allegations contained in its complaint and cannot, through the use of motion briefs, amend the complaint") (citations omitted), aff'd, 141 F.3d 1162 (4th Cir. 1998) (table); see also Shanahan v. City of Chicago, 82 F.3d 776, 781 (7th Cir. 1996).
Furthermore, in Maryland, where the "the essence of a relationship between the parties is contractual in nature and the basis for the claim of defendant's dereliction is its failure to perform the contract, the cause of action arising from such dereliction is not available in a tort action but only in an action for breach of contract." Abt Associates, Inc. v. JHPIEGO Corp., 104 F.Supp.2d 523, 537 (D.Md. 2000) (citation omitted). In this case, the relationship between plaintiffs and Shaw was solely contractual and any losses arising from Shaw's failure to perform its undertaking are recoverable as contract damages only.
As a matter of law, there are no facts alleged in the Second Amended Complaint that are sufficient to show that Shaw intentionally engaged in deceit or fraud, or that its employees acted with actual malice. Shaw made statements or representations to plaintiffs that, in the end, plaintiffs allege in summary fashion were "untrue," but it is clear from the facts pled that Shaw lacked the requisite intent to substantiate a fraud claim, or the malice required for punitive damages under Maryland law. Ellerin v. Fairfax Sav., F.S.B., 652 A.2d 1117, 1122, 337 Md. 216, 227 (1995). To the contrary, the facts suggest that throughout the course of dealing, all parties believed that Shaw's carpet was compliant. Indeed, at the very beginning of the undertaking, Shaw stated that it would "begin work on developing an acceptable product" if plaintiffs obtained the WMATA contract. Notably, moreover, when Shaw was made aware of the fact that the carpet delivered in the "test run" was noncompliant, it represented that it would use its best efforts to produce carpet that would meet the specifications. It is difficult if not impossible plausibly to assert that Shaw was aware from the beginning that its carpet was noncompliant and that it moved forward with that knowledge when the alleged facts clearly show that even WMATA, the actual end user/customer, who created the specifications, deemed the carpet compliant at various points throughout the relationship.
IV.
For the reasons stated above, it is this 23rd day of January, 2006, by the United States District Court for the District of Maryland, ORDERED
(1) That the motion to dismiss is GRANTED AND COUNTS FIVE AND SIX OF THE SECOND AMENDED COMPLAINT ARE DISMISSED WITH PREJUDICE; and it is further ORDERED
(2) That the parties shall continue with discovery and the court shall forthwith refer this matter for mediation with a magistrate judge.