Summary
holding that in determining whether allegations of fraud are sufficiently pled, the Court should consider the complaint as a whole, and finding that a claim of negligent misrepresentation survived where the complaint, "analyzed as a whole, adequately put [the defendant] on notice of the particular instances of misrepresentation claimed by [the plaintiff]"
Summary of this case from Orthoaccel Techs., Inc. v. Devicix, LLCOpinion
Case No. 04-4791 ADM/AJB.
May 4, 2005
J. Thomas Vitt, Esq., and Michelle S. Grant, Esq., Dorsey Whitney LLP, Minneapolis, MN, appeared for and on behalf of Plaintiff.
Christopher K. Larus, Esq., and Jennifer A. Kitchak, Esq., Fulbright Jaworski LLP, Minneapolis, MN, appeared for and on behalf of Defendant.
MEMORANDUM OPINION AND ORDER
I. INTRODUCTION
On February 22, 2005, oral argument before the undersigned United States District Judge was heard on Defendant Spherion Pacific Workforce LLC's ("Spherion" or "Defendant") Motion to Dismiss [Docket No. 6]. In its Complaint [Docket No. 1], Plaintiff Evangelical Lutheran Church in America Board of Pensions ("Evangelical" or "Plaintiff") alleges claims for breach of contract, fraud and fraudulent inducement, negligent misrepresentation, and violation of the Minnesota Consumer Fraud Act. Defendant moves to dismiss all claims with the exception of the breach of contract claim. Defendant's Motion to Dismiss is granted in part and denied in part.
II. BACKGROUND
In 2001, Evangelical and Spherion entered into a Services Agreement, wherein Spherion agreed to perform computer consulting services to Evangelical. Services Agreement (Kitchak Aff. [Docket No. 9] Ex. A). Under the Services Agreement, Spherion's personnel were to work with Evangelical to design and develop a new Enrollment and Eligibility System. Id. The parties vehemently disagree as to the success of the services provided by Spherion. Ultimately, Evangelical terminated the project and initiated this lawsuit.
III. DISCUSSION
A. Motion to Dismiss Standard
Rule 12 of the Federal Rules of Civil Procedure provides that a party may move to dismiss a complaint for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). In considering a motion to dismiss, the pleadings are construed in the light most favorable to the nonmoving party, and the facts alleged in the complaint must be taken as true. Hamm v. Groose, 15 F.3d 110, 112 (8th Cir. 1994); Ossman v. Diana Corp., 825 F. Supp. 870, 879-80 (D. Minn. 1993). Any ambiguities concerning the sufficiency of the claims must be resolved in favor of the nonmoving party. Ossman, 825 F. Supp. at 880. "A motion to dismiss should be granted as a practical matter . . . only in the unusual case in which the plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief." Frey v. City of Herculaneum, 44 F.3d 667, 671 (8th Cir. 1995).
B. Evangelical's Tort Claims
Spherion avers that Evangelical's tort claims, including the fraud, fraudulent inducement, and negligent misrepresentation claims, must be dismissed because these claims arise out of the same set of facts as Evangelical's breach of contract claim.
1. Choice of Law
As a threshold matter, it must be determined under what law Evangelical's tort claims arise, as the Services Agreement contains a choice of law provision which provides: "This Agreement shall be governed by and construed according to the laws of the state of Florida." Services Agreement ¶ 13(e). A federal court sitting in diversity will look to the forum state's law in determining whether a choice of law clause is effective. Retail Assocs., Inc. v. Macy's East, Inc., 245 F.3d 694, 697 (8th Cir. 2001) (citation omitted). Minnesota courts honor choice of law clauses.Northwest Airlines, Inc. v. Astraea Aviation Servs., Inc., 111 F.3d 1386, 1392 (8th Cir. 1997). In applying Minnesota law, the Eighth Circuit has held that even narrowly drawn choice of law provisions will apply to non-contract claims if the non-contract claims "are closely related to the interpretation of the contract and fall within the ambit of the express agreement."Id. at 1389.
In this instance, the choice of law provision in the Services Agreement is narrowly drawn. Florida State Board of Admin. v. Law Eng'g and Envtl. Servs., Inc., 262 F.Supp.2d 1004, 1013 (D. Minn. 2003) (finding an essentially identical choice of law provision to be narrow). However, the fraud and fraudulent inducement claims are closely related to the interpretation of the contract. In the opening paragraph of its Complaint, Evangelical avers that: "The causes of action arise out of Spherion's total failure to provide the contracted-for software and services in a competent, professional manner, and its deliberate and/or negligent deception of [Evangelical] before and throughout the course of the project." Compl. ¶ 1. To evaluate the causes of action, the Services Agreement must of necessity be read and interpreted to determine whether Spherion's actions were fraudulent or deceptive. In fact, the entire relationship between Spherion and Evangelical, including the alleged misrepresentations, is predicated on the existence of the Services Agreement. More specific allegations in the Complaint further reveal how closely tied the tort claims are to the contract claims. For example, Evangelical alleges Spherion did not fulfill its promises, the software it delivered was defective, and the misrepresentations were made to induce Evangelical to retain Spherion. Compl. ¶¶ 25, 52-63, 73. All of these allegations will require analysis of the Services Agreement to determine their validity. As a result, Evangelical's fraud and fraudulent inducement claims are closely tied to the interpretation of the Services Agreement, and Florida law will apply to Evangelical's claims.
2. Economic Loss Doctrine
Under Florida law, "the economic loss rule generally `bars tort claims that are based on actions inextricably intertwined with the acts constituting the breach of contract.'" Florida State, 262 F.Supp.2d at 1016 (quoting Excess Risk Underwriters, Inc. v. Lafayette Life Ins. Co., 208 F.Supp.2d 1310, 1318 (S.D. Fla. 2002)); see also HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So.2d 1238, 1239 (Fla. 1997) ("Where a contract exists, a tort action will lie for either intentional or negligent acts considered to be independent from acts that breached the contract"). Here, as discussed previously, the allegations relating to Evangelical's tort claims are closely intertwined with its breach of contract claims. The economic loss rule, therefore, bars Evangelical from pursuing its fraud and fraudulent inducement claims. The rule, however, does not forestall Evangelical from seeking relief under a negligent misrepresentation claim, because Florida law has carved out of the economic loss doctrine an exception for negligent misrepresentation claims. Florida State, 262 F.Supp.2d at 1019 (citing PK Ventures, Inc. v. Raymond James Assocs., 690 So.2d 1296 (Fla. 1997)). Spherion argues PK Ventures and the other Florida cases that utilize the negligent misrepresentation exception are distinguishable from the instant litigation. Spherion claims the cases cited by Evangelical involve pure tort claims, not contractual claims mixed with tort claims. However, a reading of the cited Flroida cases does not support limiting exception as Spherion suggests, and no other authority has been cited to support such a distinction. As a result, Evangelical's fraud and fraudulent inducement claims must be dismissed.
3. Particularity
Spherion argues Evangelical's negligent misrepresentation claim is not pled with the particularity required by Federal Rule of Civil Procedure 9(b). "In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Fed.R.Civ.P. 9(b); Tuttle v. Lorillard Tobacco Co., 118 F. Supp. 2d 954, 963 (D. Minn. 2000). "This means the who, what, when, where, and how: the first paragraph of any newspaper story." Parnes v. Gateway 2000, Inc., 122 F.3d 539, 549 (8th Cir. 1997) (citations omitted). "One of the main purposes of the rule is to facilitate a defendant's ability to respond and to prepare a defense to charges of fraud."Commercial Prop. Inv., Inc. v. Quality Inns Int'l, Inc., 61 F.3d 639, 644 (8th Cir. 1995) (citation omitted).
Spherion claims Evangelical has failed to plead its negligent misrepresentation claim with the requisite particularity required by Rule 9(b). Specifically, Spherion references fourteen allegations of misrepresentation in Evangelical's Complaint it contends are lacking in particularity. To be sure, some of Evangelical's general averments suffer from a lack of specification. For example, Evangelical alleges that during the term of the Services Agreement, Spherion made affirmative misrepresentations, both oral and written, and material omissions. Although this allegation, taken alone, fails the particularity test, Evangelical's Complaint, analyzed as a whole, adequately puts Spherion on notice of the particular instances of misrepresentation claimed by Evangelical. For example, Evangelical cites Spherion's weekly status reports, delivered from February 19, 2001 to November 26, 2002, as examples of misrepresentations. Compl. ¶ 27. Evangelical also identifies specific incidents, such as a March 6, 2002 email warning of problems with the project that was withheld from Evangelical, as examples of Spherion's alleged misrepresentations. Id. ¶ 32. These allegations are of the requisite specificity to satisfy the pleading requirements of Rule 9(b). Accordingly, Evangelical's negligent misrepresentation claim survives.
C. Minnesota Consumer Fraud Act
Spherion contends that Evangelical's claim under the Minnesota Consumer Fraud Act ("CFA") must be dismissed because Evangelical can not demonstrate it has brought its CFA claim for the public benefit. Generally, the CFA does not provide a private right of action to individual consumers in "one-on-one" transactions. However, in certain circumstances, the Private Attorney General Act ("private AG act") allows private remedies. Minn. Stat. § 8.31. Consequently, Evangelical's CFA claim, if it is to survive, must be brought pursuant to the private AG act.
The private AG act allows private citizens the right to act as a "private" attorney general, taking on the role and duties of the attorney general in defending private claimants from fraudulent business practices. Ly v. Nystrom, 615 N.W.2d 302, 311 (Minn. 2000). As a result, "the purpose of any statute granting private citizens authority to bring a lawsuit in lieu of the attorney general, is the protection of public rights and the preservation of the interests of the state." Id. at 313. Thus, to adequately state a claim under the private AG act, "the public interest must be demonstrated." Pecarina v. Tokai Corp., No. 01-1655, 2002 WL 1023153, *5 (D. Minn. May 20, 2002); see also Zutz v. Case Corp., No. 02-1776, 2003 WL 22848943, *3 (D. Minn. Nov. 21, 2003).
According to Evangelical, Ly stands merely for the proposition that a public benefit need be demonstrated only to recover attorney's fees under the private AG act. This interpretation of Ly, however, directly conflicts with subsequent Minnesota Supreme Court opinions in which the Court clarified its holding in Ly:
In Ly, we interpreted the private attorney general (AG) statute, which allows persons injured by a violation of laws entrusted for enforcement to the attorney general to bring actions under those laws and recover damages together with costs and attorney fees. . . . We held that the private AG statute applies only to those claimants who demonstrate that their cause of action benefits the public. Ly, 615 N.W.2d at 314. Our holding, therefore, limited the scope of the private AG statute from "any person" injured by a violation of certain laws to those "who demonstrate that their cause of action benefits the public." Ly, 615 N.W.2d at 314.Anderson-Johanningmeier v. Mid-Minnesota Women's Center, Inc., 637 N.W.2d 270, 276-77 (Minn. 2002).
Notwithstanding its argument that a demonstration of a public benefit is not required by the private AG act, Evangelical asserts that it has nevertheless successfully demonstrated it is pursuing a public benefit through this lawsuit. "To determine whether a lawsuit is brought for the public benefit the Court must examine not only the form of the alleged misrepresentation, but also the relief sought by the plaintiff." Zutz, 2003 WL 22848943 at *4 (citing Tuttle v. Lorillard Tobacco Co., No. 99-1550, 2003 WL 1571584, *6-7 (D. Minn. Mar. 3, 2003)). Evangelical notes that the alleged fraud perpetrated upon it affects not only Evangelical, but also the tens of thousands of people who benefit from its plans, and for that matter, the millions of Evangelical members who could potentially benefit from Evangelical's plans. Evangelical confuses large numbers with the public benefit. Evangelical is undisputedly a private organization, and any remedies sought in this case will enure solely to Evangelical. "Where recovery is sought for the exclusive benefit of the plaintiff, there is no public benefit."Id. Additionally, there is no allegation that the representations made to Evangelical were made to the public at large. Consequently, Evangelical's CFA claim must be dismissed.
In a refreshing display of candor, Evangelical admits that Eighth Circuit law suggests statutory claims emanating from the laws of a state that does not govern an agreement pursuant to a choice of law provision are barred. Astraea, 111 F.3d at 1392 n. 4. Because Florida law governs this dispute, this may further bar Evangelical's CFA claim.
IV. CONCLUSION
Based on the foregoing, and all the files, records and proceedings herein, IT IS HEREBY ORDERED that Defendant's Motion to Dismiss [Docket No. 6] is GRANTED in part and DENIED in part. The claims of negligent misrepresentation and breach of contract will proceed to discovery.