Opinion
02 CV 10176 (DLC)
September 17, 2002
Andrew J. Ryan, Robert F. D'Emilia, Salisbury Ryan, LLP, New York, New York, Attorneys for Plaintiff.
Bennett H. Last, Frederic P. Rickles, Gilbride, Tusa, Last Spellane, LLC, New York, New York, Attorneys for Defendant.
OPINION AND ORDER
Plaintiff Bombadier Capital, Inc. ("BCI") brought this diversity action on December 24, 2002 against defendants Naske Air GMBH ("Naske Air"), Erbengemeinschaft/Ortwin R. Naske ("Naske Estate") and Wilmington Trust Company, as Owner Trustee ("Wilmington Trust") (collectively, "Borrowers"), for a collection of debt. BCI alleges that Naske Air defaulted under a loan agreement executed in connection with the purchase of an aircraft. BCI seeks monetary damages from Naske Air and the Naske Estate, and an order directing Wilmington Trust, as the aircraft's owner trustee, to relinquish possession of the aircraft.
On March 19, 2003, Borrowers filed an answer and counterclaim against BCI. BCI now moves to dismiss Borrowers' counterclaims and related affirmative defenses. For the reasons stated below, the motion is granted.
Background
The parties' pleadings allege the following. BCI is in the business of financing the purchase of commercial equipment, including aircraft. On or about May 9, 2001, Naske Air entered into a loan agreement with BCI ("Loan Agreement") in which BCI financed Naske Air's purchase and refurbishment of a 1981 Bombardier CL-600-1A11 aircraft ("Aircraft") for $6,075,000. The loan to Naske Air was guaranteed by Ortwin Naske ("Naske"), Naske Air's principal, pursuant to a Guaranty ("Guaranty") also dated the same day. Both the Loan Agreement and the Guaranty contained New York choice of law provisions, and named the United States District Court for the Southern District of New York as the proper venue for any legal action arising from the contracts.
In the summer of 2001, Naske died in an airplane crash. After Naske's death, Naske Air ceased making loan payments, and subsequently informed BCI orally and in writing that it would make no further payments. BCI demanded payment from the Naske Estate as Naske's successor under the Guaranty. The Naske Estate refused orally and in writing to make any payments to BCI.
In their answer, Borrowers assert counterclaims of fraudulent inducement, negligent misrepresentation, and breach of fiduciary duty. Borrowers allege that BCI fraudulently induced Naske Air to purchase the Aircraft at inflated prices because BCI, as the main creditor of the Aircraft's then-owner, had "an interest in substituting a more creditworthy entity, such as Naske Air, to take over the payment obligations for the Aircraft." Because of its expertise in the valuation of aircraft, BCI knew or should have known that the price paid by Naske Air was too high. Borrowers allege "upon information and belief" that "[BCI] . . . was aware of the Aircraft's condition and fair market value." BCI made affirmative representations to the Borrowers with the intent to create reliance that the Aircraft was of sufficient value to collateralize the loan. BCI was under a duty to disclose the actual value of the Aircraft, and its failure to do so was fraudulent.
Borrowers' claim for negligent misrepresentation alleges that BCI's representations and omissions regarding the value of the Aircraft were made in a negligent, careless, and/or reckless manner, and that Naske Air relied upon such misrepresentations to their detriment. Finally, Borrowers allege that BCI breached its fiduciary duty to act in good faith and in a commercially reasonable manner by preventing Naske Air from reselling the Aircraft. Upon Naske's death, Borrowers entered into a binding contract with a creditworthy third-party purchaser for a sale at a reasonable price. As part of the contract of sale, the third-party purchaser required that BCI allow it to assume the existing financing arrangement for the Aircraft. BCI, through one of its agents, agreed to this condition, but, after much delay, rescinded its promise. As a result, the third party purchaser withdrew its offer, and Naske Air was unable to complete the sale of the Aircraft.
BCI has moved to dismiss Borrowers' three counterclaims on the following grounds: (1) the fraudulent inducement and negligent misrepresentation counterclaims are defectively pled in that they lack the specificity required under Rule 9(b), Fed.R.Civ.P., (2) the negligent misrepresentation counterclaim fails to allege the existence of a "special relationship" with Naske Air, as required by New York law for claims of negligent misrepresentation, and (3) the fiduciary duty claim fails as a matter of law because BCI owed them no such duty.
Discussion
A motion to dismiss is governed by Rule 12(b)(6), Fed.R.Civ.P. To dismiss a claim pursuant to Rule 12(b)(6), a court must determine that "it appears beyond doubt, even when the [claim] is liberally construed, that the [moving party] can prove no set of facts which would entitle him to relief." Jaqhory v. New York State Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997) (citation omitted). In construing a pleading, the court must "accept all factual allegations in the [claim] as true and draw inferences from those allegations in the light most favorable to the [pleader]." Id. "Given the Federal Rules' simplified standard for pleading, a court may dismiss a [claim] only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Swierkiewicz v. Sorema, N.A., 534 U.S. 506, 514 (2002) (citation omitted). The court need not credit general conclusory allegations that "are belied by more specific allegations of the [pleading]." Hirsch v. Arthur Andersen Co., 72 F.3d 1085, 1092 (2d Cir. 1995).
The Federal Rules of Civil Procedure require that a pleading contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Rule 8(a)(2), Fed.R.Civ.P. Pleadings are to give "fair notice" of a claim in order to enable the opposing party to answer and prepare for trial, and to identify the nature of the case. Simmons v. Abruzzo, 49 F.3d 83, 86 (2d Cir. 1995); Salahuddin v. Cuomo, 861 F.2d 40, 42 (2d Cir. 1988). "Rule 8(a)'s simplified pleading standard applies to all civil actions, with limited exceptions." Swierkiewicz, 534 U.S. at 513.
One of the exceptions to Rule 8's simplified pleading standard applies to claims of fraud. Claims of fraud are governed by Rule 9(b), Fed.R.Civ.P. Although "[m]alice, intent, knowledge, and other condition of mind of a person may be averred generally," Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir. 2001), Rule 9(b) requires allegations of fraud to be stated with particularity. See Ganino v. Citizens Utils. Co., 228 F.3d 154, 168 (2d Cir. 2000). The purpose behind Rule 9(b)'s heightened pleading requirement is to provide fair notice of a claim, to safeguard a party's reputation from improvident charges of wrongdoing, and to protect against the institution of a strike suit. See Acito v. IMCERA Group, Inc., 47 F.3d 47, 52 (2d Cir. 1995). To comply with the requirements of Rule 9(b), an allegation of fraud must specify: "(1) those statements the plaintiff thinks were fraudulent, (2) the speaker, (3) where and when they were made, and (4) why plaintiff believes the statements fraudulent."Koehler v. Bank of Bermuda (New York) Ltd., 209 F.3d 130, 136 (2d Cir. 2000).
Fraudulent Inducement
The Borrowers' claim of fraudulent inducement rests on two alternative theories. First, Borrowers assert that BCI's failure to disclose the "true value" of the Aircraft is a fraud by omission. Second, Borrowers allege misrepresentations by BCI that the "Aircraft was of sufficient value to fully collateralize the loan proceeds at the time of the sale to Naske." Under either theory, the claim of fraudulent inducement must be dismissed.
Under New York law, in order for an omission to be fraudulent, the party accused of fraud must have had a duty to speak. Progressive Casualty Ins. Co. v. C.A. Reasequradora Nacional de Venezuela, 991 F.2d 42, 47 (2d Cir. 1993). Such a duty "ordinarily arises where the parties are in a fiduciary or other relationship signifying a heightened level of trust." Remington Rand Corp. v. Amsterdam-Rotterdam Bank, N.V., 68 F.3d 1478, 1483 (2d Cir. 1995). For example, a duty to disclose may arise if "one party possesses superior knowledge, not readily available to the other, and knows that the other is acting on the basis of mistaken knowledge." Id. at 1484. See also Ceribelli v. Elghanayan, 990 F.2d 62, 64 (2d Cir. 1993). The relationship between debtor and creditor is not, absent special circumstances, a fiduciary relationship. In Re Mid-Island Hospital, Inc., 276 F.3d 123, 130 (2d Cir. 2002); Wiener v. Lazard Freres Co., 672 N.Y.S.2d 8, 14 (1st Dept. 1998). "When parties deal at arms length in a commercial transaction, no relation of trust or confidence sufficient to find the existence of a fiduciary relationship will arise absent extraordinary circumstances." In Re Mid-Island, 276 F.3d at 130.
The Borrowers have not pleaded sufficient facts from which to infer the existence of a fiduciary relationship between themselves and BCI. In particular, Borrowers fail to plead sufficient facts to show how BCI's knowledge of the value of the Aircraft was superior to their own. Borrowers' only allegation of superior knowledge is that "upon information and belief" BCI is an "expert" in the "evaluation of the market for various aircraft [sic]," while Naske Air "had no comparable expertise." These allegations are insufficient to support the necessary imbalance in light of the pleadings' averments that Naske Air is itself an airline company and the absence of any allegation that Naske Air was denied an opportunity to inspect the Aircraft. The claim of fraudulent inducement, to the extent it is based on an omission theory, is dismissed.
Borrowers' alternative theory of fraudulent inducement is based upon a misrepresentation theory. Because a fraudulent inducement claim necessarily involves allegations of fraud, it must meet Rule 9(b)'s heightened pleading requirements. See Hoffenberg v. Hoffman Pollok, 248 F. Supp.2d 303, 310-11 (S.D.N.Y. 2003). Borrowers' conclusory allegations are not sufficient to meet Rule 9(b)'s pleading requirements. Borrowers fail to identify the allegedly fraudulent statements made by BCI, the speaker or speakers of the allegedly fraudulent statements, or when and where the statements were made.
Borrowers admit that their fraudulent inducement claim is not pled with sufficient particularity, but contend that Naske's death entitles them to relief from the strictures of Rule 9(b) since Naske was the only person who had contact with BCI in negotiating the loan. They rely on the principle that facts peculiarly within the opposing party's knowledge may be pled on information and belief despite Rule 9(b)'s heightened pleading requirements. See IUE AFL-CIO Pension Fund v. Herrmann, 9 F.3d 1049, 1058 (2d Cir. 1993) (need not plead those facts to which plaintiff was never privy); Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990) (exception is not a license for speculation). Even when facts are exclusively within the other party's control, however, a complaint must still contain specific facts supporting a strong inference of fraud. See, e.g., Wexner, 902 F.2d at 172; Elliott Assocs., L.P. v. Covance, Inc., No. 00-C4115 (SAS), 2000 WL 1752848, at *6 (S.D.N.Y. Nov. 28, 2000) (citing Devaney v. A.P. Chester, 813 F.2d 566, 569 (2d Cir. 1987)). Naske's death does not relieve Borrowers of their obligation to plead the specific representations that constitute the fraud and to identity the speaker and date of the representations. Without such basic information, the allegations constitute little more than speculation. Borrowers' failure to plead any specific facts to support the claim of fraudulent inducement requires that this counterclaim and its associated affirmative defenses be dismissed.
Negligent Misrepresentation
Under New York law, a claim for negligent misrepresentation requires proof that
(1) the defendant had a duty, as a result of a special relationship, to give correct information; (2) the defendant made a false representation that he or she should have known was incorrect; (3) the information supplied in the representation was known by the defendant to be desired by the plaintiff for a serious purpose; (4) the plaintiff intended to rely and act upon it; and (5) the plaintiff reasonably relied on it to her detriment.Hydro Investors, Inc. v. Trafalgar Power Inc., 227 F.3d 8, 20 (2d Cir. 2000). A "special relationship" is akin to a fiduciary relationship, but need not rise to that same level. See Lehman Bros. Commercial Corp. v. Minmetals Intern. Non-Ferrous Metals Trading Co., 179 F. Supp.2d 118 (S.D.N.Y. 2000). Liability for negligent misrepresentation is imposed only on those "who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified." Kimmel v. Schaefer, 89 N.Y.2d 257, 263 (1996). In commercial cases, there must be an "identifiable source of a special duty of care." Id. at 264. "Whether the nature and caliber of the relationship between the parties is such that the injured party's reliance on a negligent misrepresentation is justified generally raises an issue of fact." Id. In determining whether justifiable reliance exists in a particular case, a fact finder should consider "whether the person making the representation held or appeared to hold unique or special expertise; whether a special relationship of trust or confidence existed between the parties; and whether the speaker was aware of the use to which the information would be put and supplied it for that purpose."Id.
Using Kimmel's three-part analysis, Borrowers fail to plead justifiable reliance on BCI's misrepresentations. Although Borrowers allege that BCI had superior knowledge in the valuation of aircraft, that Borrowers had no comparable expertise, and that BCI obtained an independent appraisal listing the true value of the Aircraft as substantially less than Borrowers paid for it, in light of the entire pleading, these allegations do not suggest that BCI's expertise was sufficiently unique or special. As already noted, Naske Air is identified as an airline company and there is no allegation that it was denied an opportunity to inspect or appraise the Aircraft. Borrowers also fail to plead the existence of a special relationship of trust and confidence with BCI. Borrowers do allege that BCI made representations that the Aircraft was of sufficient value to collateralize the loan, and that BCI knew that Borrowers would rely on its expertise. Their adequate pleading of one of the three Kimmel factors, however, is insufficient to survive a motion to dismiss. See Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 103-104 (2d Cir. 2001) (adequate pleading of two of the three Kimmel factors sufficient to overcome a motion to dismiss).
Breach of Fiduciary Duty
As discussed supra, the counterclaims fail to plead that BCI and Borrowers were in a fiduciary relationship. Consequently, Borrowers' counterclaim for breach of fiduciary duty fails as a matter of law. Borrowers make only bare assertions of the existence of such a relationship between Naske Air and BCI. Conclusory assertions that one party is acting in a fiduciary capacity for another is not sufficient to plead the existence of a fiduciary relationship when the pleadings also contain allegations that the parties were in a borrower/lender relationship. Because the Borrowers do not adequately allege a fiduciary relationship, it is unnecessary to discuss whether BCI's failure to approve the third-party purchaser's application for credit constitutes a breach of fiduciary duty.
Conclusion
The motion by Bombadier Capital Inc. to dismiss the counterclaims and their associated affirmative defenses is granted.
SO ORDERED.