Summary
In Shutzer, for example, the plaintiff brought claims for breach of contract, breach of the implied covenant of good faith, estoppel, fraud, violation of Mass. Gen. Laws ch. 93A, and unjust enrichment.
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CIVIL ACTION NO. 05-11486-MLW.
September 19, 2006
MEMORANDUM AND ORDER
Plaintiff Lawrence Shutzer ("Shutzer") has brought claims against defendants S. Rothschild Co., Inc. ("SRC"), S. Rothschild Men's, Inc. ("RMI"), and Mark Friedman ("Friedman"), alleging that the defendants breached their contract with him in March, 2000. RMI is a wholly owned subsidiary of SRC and both are controlled by the same principals. They are collectively referred to as "Rothschild." The defendants have moved to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) or, in the alternative, to transfer venue to the Southern District of New York.
The court has carefully considered the motions and the responses. For the following reasons, the motion to dismiss is being allowed in part and denied in part. Counts IV and V are being dismissed against all of the defendants. All of the counts are being dismissed against defendant Friedman. The motion to transfer venue is being denied.
The facts alleged in the complaint include the following. Shutzer, a Massachusetts resident, worked for Mimco, Inc. ("Mimco"), a men's outerware company, throughout the 1990s. In 1999, Friedman, as the director president and principal shareholder of RMI and SRC, met with Shutzer in New York to discuss a possible relationship between Rothschild and Mimco. Following the meeting, the parties had extensive negotiations relating to a merger between Mimco and SRC. The parties orally agreed that SRC would purchase all patterns, samples, and other assets owned by Mimco. In return, SRC would receive an assignment of all rights to Mimco's New York showroom at a below-market rental. Also, all of the Mimco employees, including Shutzer, would become either SRC or RMC employees.
It is also alleged that on February 15, 2000, the parties further orally agreed that: Shutzer would attempt to obtain as many orders as possible from former Mimco customers for Rothschild; Rothschild would hire all Mimco employees; Shutzer would receive a written employment contract, be included on SRC's payroll, and be paid a sales commission for three years in addition to a salary; SRC would acquire Mimco's New York and Massachusetts offices; for three years, the profits generated by Rothschild's men's division would be shared equally between Shutzer and Rothschild after deducting salaries paid to former Mimco employees; and Shutzer would run Rothschild's men's business.
Shutzer further alleges that throughout 2000, he continued to generate business for Rothschild and marketed and promoted the Rothschild business. However, the defendants failed to meet any of their obligations to Shutzer. As a result, Shutzer alleges the defendants are liable for breach of contract (Count I), breach of the implied covenant of good faith (Count II), estoppel (Count III), fraud (Count IV), violation of Mass. Gen. Laws. Ch. 93A (Count V), and unjust enrichment/quasi-contract (Count VI). Finally, in Count VII, Shutzer asserts a claim for an accounting, from 2000 to the present, alleging that the defendants have refused to give him access to financial records showing the sales and profits on orders that he obtained.
In considering a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a court "must accept all well-pleaded facts alleged in the Complaint as true and draw all reasonable inferences in favor of the plaintiff." Day v. Fallon Cmty. Health Plan, Inc., 917 F. Supp. 72, 75 (D. Mass 1996); see also Watterson v. Page, 987 F.2d 1, 3 (1st Cir. 1993). "'A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.'" Miranda v. Ponce Fed'l Bank, 948 F.2d 41, 44 (1st Cir. 1991) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). The court must "neither weigh the evidence nor rule on the merits because the issue is not whether the plaintiffs will ultimately prevail, but whether they are entitled to offer evidence in support of their claims." Day, 917 F. Supp. at 75.
This "highly deferential" standard of review "does not mean, however, that a court must (or should) accept every allegation made by the complainant, no matter how conclusory or generalized." United States v. AVX Corp., 962 F.2d 108, 115 (1st Cir. 1992). A court should "eschew any reliance on bald assertions, unsupportable conclusions, and 'opprobrious epithets.'" Chongris v. Board of Appeals of Town of Andover, 811 F.2d 36, 37 (1st Cir. 1987) (quoting Snowden v. Hughes, 321 U.S. 1, 10 (1944)), cert. denied, 107 S. Ct. 3266 (1987).
The plaintiff concedes that his tort claims in Count IV (Fraud) and Count V (G.L.c. 93A) are time-barred. This conclusion is correct. Under Massachusetts law, "actions of tort . . . shall be commenced only within three (3) years after the cause of action accrues." Mass. Gen. Laws ch. 260, § 2A. The plaintiff filed this case more than five years after he discovered the cause of harm for his injury. Therefore, Counts IV and V are being dismissed.
The defendants argue that all of the other counts should be dismissed as well. Because it is alleged that Friedman acted on behalf of Rothschild, all of the remaining counts against him are being dismissed. "A contract made by the authorized agent of a corporation is the corporation's contract." Dolben v. Gleason, 292 Mass. 511, 514 (1935). Therefore, "[u]nder Massachusetts law, a high corporate officer may be personally liable for the torts a corporation commits at his direction. But, the officer ordinarily is not liable for the corporation's breach of contract," unless the officer acted out of actual malice. Union Mutual Life Insurance Company v. Chrysler Corporation, 793 F.2d 1, 11 (1st Cir. 1986). As explained below, all of the remaining counts in the complaint, except Counts IV and V which are being dismissed, are contract-related. In addition, the complaint states that Friedman, the director president and principal shareholder of RMI and SRC, was, at all times material to the complaint, "acting on behalf of the corporate Defendants and had the full authority to act on their behalf in his dealings with Shutzer and Mimco." Complaint ¶ 22. Therefore, none of the counts against Friedman survive the motion to dismiss.
The corporate defendants argue that the contract-related claims (Counts I and II) should be dismissed because they are subject to the Statute of Frauds. As explained earlier, Shutzer alleges that he reached an oral agreement with the defendants. However, the Statute of Frauds renders unenforceable an oral agreement if it cannot be performed within one year of its making. Mass. Gen. Laws ch. 259, § 1. See also In re Furst, 914 F.Supp. 734, 738 (D. Mass. 1996) ("the Statute of Frauds invalidates an oral joint venture agreement if it can be shown that the agreement is not to be performed within one year from the making thereof.") (quotations and citations omitted). Shutzer alleges the parties orally agreed to a contract for a "three year period." Complaint ¶ 3. Therefore, the corporate defendants contend that the contract is unenforceable. In addition, they argue that if "no contract exists, there can be no derivative implied covenant of good faith and fair dealing applicable to [the] parties." Mass. Eye Ear Infirmary v. QLT Phototherapeutics, Inc., 412 F.3d 215, 230 (1st Cir. 2005).
The Statute of Frauds, however, does not provide a proper basis for granting the corporate defendants' motion to dismiss. "Numerous cases state that the affirmative defenses specifically listed in Federal Rule 8(c) [which includes the Statute of Frauds] . . . and any other defense that is not specified in Rule 12(b), must be asserted in the defendants' answer; as a result of these precedents, most defensive matters cannot be the basis for a motion to dismiss plaintiff's claim." 5 Charles Alan Wright and Arthur R. Miller, Federal Practice and Procedure, § 1277, at 626 (2004). The Third Circuit and some other courts have, however, permitted motions to dismiss to be decided on the basis of any affirmative defense. Id. at 628. However, even this broader approach would not result in the dismissal of Shutzer's claims because he has alleged facts which, if proven, would defeat a Statute of Frauds defense.
More specifically, "estoppel, if appropriately applied . . . would . . . preclude [the defendant] from asserting the affirmative defense of the Statute of Frauds." Cellucci v. Sun Oil Co., 2 Mass. App. Ct. 722, 728 (1974)). Estoppel precludes a Statute of Frauds defense if the following factors are satisfied:
(1) A representation or conduct amounting to a representation intended to induce a course of conduct on the part of the person to whom the representation is made. (2) An act or omission resulting from the representation, whether actual or by conduct, by the person to whom the representation is made. (3) Detriment to such person as a consequence of the act or omission."Palandjian v. Pahlavi, 614 F.Supp. 1569, 1581 (D. Mass. 1985) (quoting Cellucci, 2 Mass. App. Ct. at 728). See also Andrews v. Charon, 289 Mass. 1, 5 (1935) (the "basis for estoppel against setting up the Statute of Frauds is such change of situation or part performance by the party seeking relief as places him in a situation which is a fraud upon him, unless the agreement is fully performed.") (quotation omitted); Hickey v. Green, 14 Mass. App. Ct. 671, 673 (1982) ("[a] contract . . . may be specifically enforced notwithstanding failure to comply with the Statute of Frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only be specific enforcement.").
In Palandjian, the parties entered into an oral agreement to develop a holiday resort. Palandjian, 614 F.Supp. at 1571-1572. There was evidence that after the contract was established, the defendant made specific promises to the plaintiff regarding the resort project, reasonably inducing the plaintiff to invest substantial time, money, and other resources in developing the resort. Id. In denying a motion for summary judgment, the court held this evidence to be sufficient to prove estoppel that could defeat a Statute of Frauds defense. Id. at 1580-1581. Similarly, in Cellucci, the court held that the defendant could not prevail on a Statute of Frauds defense because the defendant had misled the plaintiff into thinking it would accept his offer, and the plaintiff had relied on the misrepresentation to his detriment.Cellucci, 2 Mass. App. Ct. at 728-729.
In the instant case, the facts alleged and the reasonable inferences to be drawn from them suggest the following. Shutzer was induced by the defendants to perform substantially to his detriment. Shutzer alleges that the parties reached an agreement as to his role in SRC on February 15, 2000. Part of that agreement was that Shutzer would receive a written employment contract. Although he never received a written employment contract, by March of 2000, the material terms of his employment had been worked out. Shutzer contends that in reliance on them, he delivered millions of dollars of business to the defendants from former Mimco customers and others. Since the business went to the defendants and not to Shutzer himself, he did this to his financial detriment. Therefore, the plaintiff has sufficiently alleged facts which would, if proven, justify a finding of estoppel that would defeat defendants' Statute of Frauds defense.
The defendants argue that Shutzer's claims of estoppel (Count III) and unjust enrichment/quasi contract (Count VI) should be dismissed because they are each tort claims on which the statute of limitations period has expired. As described earlier, under Massachusetts law, there is a three-year statute of limitations on tort actions. Mass. Gen. Laws ch. 260, § 2A. The statute begins to run when the plaintiff discovered or reasonably should have discovered the cause of harm for his injury. Bowen v. Eli Lilly Co., Inc., 408 Mass. 204, 205-06 (1990). In this case, Shutzer alleges that he became aware of the defendants' harmful conduct in 2000. He did not file this case until more than five years later. Therefore, if Counts III and VI are tort claims, they do not survive defendants' motion to dismiss. However, the statute of limitations for contract actions is six years. Mass. Gen. Laws. ch. 260, § 2. Therefore, if Counts III and VI are treated as contract claims, they are not time-barred.
"It is sometimes permissible to grant a motion to dismiss based on an affirmative defense such as the statute of limitations. That happens 'when the pleader's allegations leave no doubt that an asserted claim is time-barred.'" Centro-Medico del Turabo, Inc. v. Feliciano de Melecio, 406 F.3d 1, 6 (1st Cir. 2005) (quotingLa Chapelle v. Berkshire Life Ins. Co., 142 F.3d 507, 509 (1st Cir. 1998)); see also Edes v. Verizon Communications, Inc., 417 F.3d 133, 137 (1st Cir. 2005); Jorge v. Rumsfeld, 404 F.3d 556, 561 (1st Cir. 2005). The allegations in Counts III and V of the complaint in this case do not demonstrate beyond doubt that these claims are time-barred.
"In Massachusetts the statutes of limitation applicable to law actions based on contract and tort are also applicable to suits in equity. Kagan v. Levenson, 334 Mass. 100 (1956). In deciding which statute applies in a given case, it is necessary to determine the essential nature of plaintiff's claim. Kagan v. Levenson, supra." Desmond v. Muffle, 375 F.2d 742, 743 (1st Cir. 1967). In the instant case, the essential nature of both Counts III and VI are contract-related. While Count III references fraudulent action, it alleges that Shutzer reasonably relied to his detriment on the representations made to him. This is an estoppel claim which, as described earlier, is a contract-related theory of recovery. See Palandjian, 614 F.Supp. at 1580-81. Similarly, Count VI, which alleges unjust enrichment/quasi-contract derives from the plaintiff's assertion that he conferred substantial benefit upon the defendants because he was led to believe he was performing pursuant to a contract between the parties. The allegations in Counts III and VI are substantially different from those in which courts have held the claims are primarily tort related. For example, in Epstein v. C.R. Bard, Inc., 2004 WL 1598912, *3 (D. Mass. 2004), it was held the three-year tort statute of limitations applies to the unjust enrichment claim because "the [c]omplaint sounds in tort and makes no mention of any contract." In the instant case, however, the alleged contract is not only mentioned, it is at the heart of the claims. Therefore, since the statute of limitations for contract claims is six years, both Counts III and VI survive. See Mass. Gen. Laws. ch. 260, § 2.
The defendants' motion to transfer venue is not meritorious. The party seeking transfer of venue has a heavy burden, because "there is a strong presumption in favor of the plaintiff's choice of forum." Cody v. Ashcraft Geral, 223 F.3d 1, 11 (1st Cir. 2000). The convenience of witnesses is the most important factor in deciding a motion to transfer. Brant Point Corp. v. Poetzsch, 671 F.Supp. 2, 3 (D. Mass. 1987). Under this factor, "the Court must consider not only the number of potential witnesses located in the [two] districts, but also the nature and quality of their testimony." Id.
In the instant case, the convenience of witnesses factor does not tilt in either party's favor. The defendants point to eight witnesses living in the New York area, only three of whom are key witnesses. Defendant Friedman, who negotiated with Shutzer is located in New York. Also, Daniel A. Swick who resides in New Jersey and works in New Jersey and New York, had conversations with Mimco's counsel and thus can provide important testimony about whether the parties reached the agreement alleged in the complaint. Finally, 485 Seventh Avenue LLC, SRC's landlord, could potentially refute allegations in the complaint that Mimco paid rent for its New York showroom.
There are five potential minor witnesses living in New York. Stephen Rankel, SRC's former outside accountant, resides in Long Island, New York. While he could testify on SRC's evaluation of potential business opportunities with Mimco, he never participated in any negotiations with Shutzer, nor has he ever met the plaintiff. Stephen Kalnick, SRC's former Treasurer and Chief Financial Officer, resides in New Jersey and works in New York. He could testify to SRC's approach to potential business opportunities with Mimco and SRC's negotiations with the landlord concerning Mimco's alleged showroom, but not to any negotiations with Shutzer. Tom Levis and Fred Conte are both former Mimco and SRC employees residing in the New York area who could testify about Mimco's motive for pursuing business with SRC, but neither had any involvement in the negotiations between the parties, nor were they involved in the events leading up to the termination of the relationship between the plaintiff and the defendants. Finally, Michael Kaufman, an SRC employee could testify about his observations of and conversations with former Mimco employees, but not about the alleged agreement that is central to this case.
On the other hand, Shutzer, a vital witness, resides in Massachusetts. He represents that he is eighty years old, has limited financial resources, and that as a solo business owner, could not be away from his business for long periods of time. In addition, Shutzer's counsel during his negotiations with the defendants, Paul Levenson, also resides in Massachusetts. The testimony of Levenson and Shutzer is very important to the case because they will testify to the nature of the negotiations and what was agreed upon between Shutzer and the defendants. Finally, when Shutzer began working for RMC, he worked at the RMC offices in Massachusetts. This office had three employees, who could be minor witnesses testifying about Shutzer and the defendants' conduct in 2000.
Therefore, there are key witness located in Massachusetts and New York, and one of the Massachusetts witnesses is elderly and has limited financial resources to travel. Neither party has shown that one venue is significantly more convenient for the bulk of the important witnesses in this case. "Transfer of venue is inappropriate . . . where its effect merely shifts the inconvenience from one party to another." Holmes Group, Inc. v. Hamilton Breach/Proctor Silex, Inc., 249 F.Supp.2d 12, 16 (D.Mass. 2002). Thus, the defendants have not met their heavy burden to overcome the plaintiff's choice of venue.
The defendants also argue that all of the events at issue in this case took place in New York. However, while the two or three face-to-face meetings took place in New York, Shutzer represents that many of the major negotiations took place during telephone conference calls while Shutzer was in Massachusetts. In addition, according to Shutzer, and not disputed by the defendants, RMC established its executive offices in Massachusetts and three employees worked out of that office. Quotes to customers originated from Massachusetts and customer orders were received in Massachusetts. Since RMC and Shutzer's business after the alleged agreement is relevant to the case, both Massachusetts and New York have a nexus to the dispute.
Finally, from a practical standpoint, the interests of justice do not demand that this case be transferred to New York. The plaintiff is 80 years old and represents his business will suffer if he has to leave Massachusetts for a week. The defendants who are involved in a business with many employees will not suffer a significant inconvenience if some of its employees must make the short trip from New York to Boston. "[I]t is not a hardship to travel from New York to Boston in order to appear for a civil trial." Veryfine Products, Inc. v. Philo Corp., 124 F.Supp.2d 16, 26 (D. Mass. 2000).
Accordingly, it is hereby ORDERED that:
1. The defendants' Motion to Dismiss pursuant to Fed.R.Civ.Proc. 12(b)(6) (Docket No. 7) is ALLOWED with respect to all counts against defendant Friedman and Counts IV and V against all the defendants. The motion is DENIED with regard to Counts I, II, III, VI, and VII against defendants SRC and SRI.
2. The defendants' Motion to Transfer Venue (Docket No. 7) is DENIED.
3. A Scheduling Conference will be held on October 13, 2006, 2006, at 4:00 p.m. The parties shall comply with the attached Order concerning that conference.