Opinion
No. 2015-CV-488
03-15-2017
Michael Coutu v. State of New Hampshire, New Hampshire Bureau of Securities Regulations
ORDER
Plaintiff, Michael Coutu ("Coutu"), has brought an action against the Defendants, State of New Hampshire and Department of Securities Regulation (collectively the"Department"), alleging breach of an agreement pursuant to which he would provide services to the State of New Hampshire and the New Hampshire Department of Securities Regulation. The original Complaint, filed on September 8, 2015, alleged only breach of contract. Plaintiff amended his Complaint to add claims for violation of the New Hampshire Consumer Protection Act and the Whistleblower Protection Act, RSA 275-E. Defendants moved to dismiss those claims and the Motion was granted. Plaintiff has now moved to amend to add a count for fraud and Defendant has moved to dismiss on the ground that the amendment does not state a cause of action. For the reasons stated in this Order, Defendant's Motion to Dismiss is DENIED.
I
When ruling on a Motion to Dismiss, the Court must determine whether the allegations stated in the Complaint "are reasonably susceptible of a construction that would permit recovery." Plaisted v. LaBrie, 165 N.H. 194, 195 (2015); Plourde Sand & Gravel v. JGI Eastern, Inc., 154 N.H. 791, 793 (2007) (quoting Berry v. Watchtower Bible & Tract Soc'y of N.Y., Inc., 152 N.H. 407, 410 (2005)). In doing so, the Court must "assume all facts pled in the plaintiff's writ are true, and . . . construe all reasonable inferences drawn from those facts in the plaintiff's favor." Id. (quoting Berry, 152 N.H. at 410). However, the Court need not "assume the truth of statements . . . that are merely conclusions of law" not supported by predicate facts. Gen. Insulation Co. v. Eckman Constr., 159 N.H. 601, 611-12 (2010). The Court tests these facts against the applicable law and will deny the motion to dismiss "[i]f the facts as alleged would constitute a basis for legal relief." Starr v. Governor, 148 N.H. 72, 73 (2002).
Plaintiff alleges a breach of contract in Count I of the Amended Complaint. He alleges that on or about September 9, 2015, he entered into a Consulting Agreement (the "Agreement") with the Department by which he agreed to provide certain services under the direction of the Secretary of State and the Director of the Department of Securities Regulation. (Amended Compl. ¶¶ 13-15.) He alleges that he performed the services required of him under the contract until its termination on May 28, 2015. (Id. at ¶ 19.) He alleges that although he performed the services required, the Department declined to pay his invoices for his work. (Id. at ¶ 32.)
Count II of the Amended Complaint, which asserts a claim for fraud, incorporates the facts alleged in Count I for breach of contract. Essentially, Coutu alleges that the Department made a conscious decision not to pay him even though it knew he was performing work and even though the Department was continuing to request and obtain services from the Coutu:
36. [Secretary of State] William Gardner testified that based upon the exchange, he concluded that Coutu had resigned his position and directed that his March-April invoice not be paid. He conceded there was no documentation supporting the purported resignation.
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39. [Director of the Bureau of Securities Regulation] Glennon denied that there was any such directive ant in fact, the BSR continued to request, and obtain services from Coutu until his resignation in late May, 2015.Complaint, ¶¶ 36-48.
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41. On or about May 11, and while continuing to request services from Coutu, Barry Glennon responded to Coutu's inquiry re: his overdue invoice, reassuring him the payment was forthcoming, promising to "hand-deliver" the overdue invoice to the accounts payable clerk. Coutu reasonably relied on this assurance in continuing to provide services to the State.
42. The BSR continued to request and obtain services from Coutu throughout May 2015.
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46. [Secretary of State] Gardner determined on or about March 27 that, despite his contract, Coutu would not receive any further payment for his continuing efforts on behalf of the State.
47. Gardner knew or should have known that his office was nonetheless continuing to request and obtain services from Coutu.
48. The inducement of performance with an intent to withhold payment for those services constitutes a fraud upon Coutu.
Coutu alleges the same damages as sought under the Contract Claim and attorney's fees. His claims can fairly be characterized as economic in nature.
II
Defendants assert that Plaintiff's fraud claim is barred by the economic loss doctrine. "In New Hampshire, the general rule is that 'persons must refrain from causing personal injury and property damage to third parties, but no corresponding tort duty exists with respect to economic loss.'" Plourde Sand and Gravel, Inc. v. JGI Eastern, Inc.,154 N.H. 791, 794 (2007) (quoting Ellis v. Robert C. Morris Inc., 128 N.H. 358, 364 (1986) overruled on other grounds by Lempke v. Dagenais, 130 N.H. 782, 792 (1988)). Relying on Plourde and a 2013 First Circuit case interpreting New Hampshire law, Schaefer v. Indymac Mortgage Services Inc., 731 F.3d 98 (1st Cir. 2013), the Department argues that while a plaintiff may recover damages for economic loss under a contract, Coutu's cause of action for purely economic loss will not lie. Plourde, 154 N.H. at 794.
In Plourde, the Court stated:
The [economic loss] doctrine is a "judicially-created remedies principle that operates generally to preclude contracting parties from pursuing tort recovery for purely economic or commercial losses associated with the contract relationship." [Citation omitted].Plourde, 154 N.H. at 794 (quoting Tietsworth v. Harley-Davidson, Inc., 677 N.W.2d 233, 241—42 (Wisc. 2004)).
The economic loss doctrine is based on an understanding that contract law and the law of warranty, in particular, is better suited than tort law for dealing with purely economic loss in the commercial arena. If a contracting party is permitted to sue in tort when a transaction does not work out as expected, that party is in effect rewriting the agreement to obtain a benefit that was not part of the bargain.
However, careful reading of the cases cited by the Department discussing the economic loss doctrine reveals that the reviewing court in those cases was considering the doctrine in the context of a negligence claim. See, e.g. Plourde, 154 N.H. at 792 (plaintiff alleged that "defendant's negligence foreseeably injured plaintiff and that defendant knew or should have known that the town's engineer would rely upon results provided defendant . . . That defendant's negligence was a proximate cause of the harm to plaintiff . . .") (emphasis supplied); Schaefer, 731 F.3d at 108 (plaintiff alleged the defendants "failed to perform or negligently performed these undertakings [related to a mortgage] and are therefore subject to tort liability") (emphasis supplied)).
This case is not a negligence case, but a fraud case. In Tessier v. Rockefeller, 162 N.H. 524, 333 (2011), citing Restatement (2d) Torts § 530, the Court held that the recipient of a fraudulent misrepresentation can recover from its maker for pecuniary loss resulting from it, if he relies on the misrepresentation in acting and his reliance is justified. The conduct alleged by the Department in this case is plainly fraudulent. Fraud consists of:
(1) A representation of the maker's own intention to do or not to do a particular thing is fraudulent if he does not have that intention.Restatement (2d) Torts § 530.
(2) A representation of the intention of a third person is fraudulent under the conditions stated in § 526.
That a fraudulent misrepresentation claim may be made in tandem with a contract claim is made plain by Comment c to Restatement (2d) Torts § 530:
c. Misrepresentation of intention to perform an agreement. The rule stated in this Section finds common application when the maker misrepresents his intention to perform an agreement made with the recipient. The intention to perform the agreement may be expressed but it is normally merely to be implied from the making of the agreement. Since a promise necessarily carries with it the implied assertion of an intention to perform it follows that a promise made without such an intention is fraudulent and actionable in deceit under the rule stated in § 525. This is true whether or not the promise is enforceable as a contract. If it is enforceable, the person misled by the representation has a cause of action in tort as an alternative at least, and perhaps in some instances in addition to his cause of action on the contract. If the agreement is not enforceable as a contract, as when it is without consideration, the recipient still has, as his only remedy, the action in deceit under the rule stated in § 525. . . . (Emphasis supplied.)Restatement (2d) Torts, § 530, Comment c.
The Court believes that the distinction between negligent and intentional tort claims is appropriate. The economic loss doctrine exists to prevent contracting parties from rewriting an agreement to obtain a benefit that was not part of bargained-for exchange by alleging a negligent performance of the agreement. Plourde, 157 N.H. at 794. As noted in Plourde, a negligence claim is simply another way of asserting that contract duties were not performed; that, for example, goods did not meet the standards specified in a contract, or services did not meet the standard specified in the contract. Interposing a tort duty in such circumstances imposes a standard of actionable duty different from the duties the parties bargained for in their contracts.
But the principle that tort claims exist when there has been a fraudulent inducement to perform or enter into a contract does not relate to the benefit of the bargain at all. Rather, it relates to whether or not one party obtains a benefit which was not bargained for at all because of one party's deceit. In such circumstances, it makes sense that a party should have remedies other than those he could have bargained for, as when, for example the contract claim is unprovable or otherwise unenforceable under the parol evidence rule. Restatement (2d) Torts § 530, Comment c. While most fraud cases involve fraudulent inducement of a contract, there is no logical reason why a fraud claim cannot be asserted for fraudulent inducement of continued performance. A non-breaching party could be placed in a worse situation in such circumstances because the non-breaching party loses the ability to appropriately mitigate while it is performing a contract that is expects will be performed by the other party in good faith.
While not discussed in detail, this principle has been implicitly recognized by the New Hampshire Supreme Court. In Wyle v. Lees, 162 N.H. 406, 411 (2011), the Court recognized that parties may plead tort claims stemming from misrepresentations which induced them to enter into a contract as long as the misrepresentations do not concern the quality or characteristics of the subject matter of the contract. That distinction is relevant here, because the plaintiff alleges that, as a result of fraudulent misrepresentations, he was induced to continue to perform under an ongoing agreement.
The Department relies upon Campbell v. CGM, LLC, 2017 WL 78474 (D.N.H. January 9, 2017) in which the United States District Court for the District of New Hampshire held that a claim that misrepresentations about an employer's financial condition and annual earnings were made in order to keep the employee working for the corporation would be barred by the economic loss doctrine. However, the court stated that the agreement between the parties was governed by Georgia law. Id. at *6. It is not clear why the tort claim would be governed by New Hampshire law, and the court cited no New Hampshire authority for the proposition that an intentional fraud claim would be barred by the economic loss doctrine. On the other hand, other district courts in the First Circuit have followed the Restatement rule and held otherwise. See, e.g. Sheet Metal Workers Local Number 20 Welfare Benefit Fund et al. v. CVS Health Corporation, 2016 WL 6462137, *7-8 (D.R.I. November 1, 2016).
It may be that the damages available in Coutu's Fraud Count may well be identical with, or substantially the same as, those which could have been recovered in an action of contract. Restatement (2d) Torts § 530, Comment c. The only difference in damages pled between the tort and prior contract claim is Coutu's claim for attorney's fees which, if Coutu can prove the allegations in his Fraud Count, might well be recoverable in the contract case under the principles of Harkeem v. Adams, 117 N.H. 687 (1977). But for the reasons stated in this Order, the Motion to Dismiss must be DENIED. 3/15/17
DATE
Defendants only object to the Motion to Amend on the ground of futility, and do not argue that it is untimely. --------
s/Richard B . McNamara
Richard B. McNamara,
Presiding Justice RBM/