Opinion
Civil Action No. 3:04-CV-1265-M.
January 19, 2005
MEMORANDUM OPINION AND ORDER
Before the Court is the "Partial Motion to Dismiss Certain Claims and For Sanctions" of Defendant J.C. Penney Corporation, Inc., f/k/a J.C. Penney Company, Inc. ("J.C. Penney") filed on August 26, 2004. For the reasons described below, Defendant's Motion is GRANTED in part and DENIED in part.
I. BACKGROUND
Plaintiff Nazareth International, Inc., ("Nazareth") is an apparel manufacturing company, which was formed in April of 2002. Plaintiff acquired its assets from Nazareth Century Mills, a former J.C. Penney supplier that has since filed for bankruptcy protection. On April 30, 2002, Plaintiff and Defendant executed a Trading Partner Agreement ("TPA"). The TPA governs the use of electronic technology to facilitate Plaintiff's agreement to supply merchandise to the Defendant for sale in its retail stores. Plaintiff delivered several shipments of Arizona© brand apparel to the Defendant, and those shipments are valued by the Plaintiff at more than $750,000. Plaintiff alleges that the Defendant is improperly withholding payment of $360,752.84. Plaintiff's suit alleges contractual and tort claims, stemming from the dispute over payment for this merchandise. Defendant filed a Motion to Dismiss under Federal Rules of Civil Procedure 12(b)(6) and 9(b) seeking to dismiss all of Plaintiff's claims except for the breach of contract claim.
II. ANALYSIS
Federal Rule of Civil Procedure 9(b) requires that allegations of fraud be pled with greater specificity than is required for other types of claims. Rule 9(b) exists so that Plaintiffs who allege fraud are required to plead in detail, to eliminate "general, unsubstantiated charges of fraud [that] can do damage to a defendant's reputation." Guidry v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir. 1992). The Defendant claims that Plaintiff has not alleged any specific facts to support its claims for fraud and negligent misrepresentation. Although the wording of Rule 9(b) does not refer to negligent misrepresentation claims, the Fifth Circuit has applied Rule 9(b)'s heightened pleading requirement in cases where the Plaintiff's fraud and negligent misrepresentation claims are based on the same set of facts. Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 723 (5th Cir. 2003). Further, since Plaintiff's request for exemplary damages is premised entirely on the fraud claim, if the fraud claim were to be dismissed under Rule 9(b), then the claim for exemplary damages would similarly be dismissed. The Defendant has also moved to dismiss several of Plaintiff's claims for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). A cause of action should be dismissed under Rule 12(b)(6) only if there is no possible set of facts upon which a plaintiff could prevail on that cause of action. United States ex rel. Bain v. Ga. Gulf Corp., 386 F.3d 648, 653 (5th Cir. 2004). Finally, the Defendant seeks sanctions under Federal Rule 11 for the filing of the Amended Complaint without sufficient particularity.
A. FRAUD, NEGLIGENT MISREPRESENTATION, AND REQUEST FOR EXEMPLARY DAMAGES
In support of its fraud claim, Plaintiff alleges that Aaron Bonham, Kevin Persons, and an individual known as "Schelp" (collectively "J.C. Penney Employees") made false statements of fact, promises of future performance with the intention not to perform as promised, and expressed statements of opinion based on false statements of fact, and statements of opinion that the representing persons knew to be false. First Am. Compl. ¶ 21. Plaintiff contends that these misrepresentations fraudulently induced the Plaintiff to enter into a contract to ship goods to the Defendant. Id. ¶¶ 10, 20. Plaintiff's negligent misrepresentation claim alleges that the Plaintiff justifiably relied on false information negligently supplied to it by the Defendant. Plaintiff refers to the same alleged facts to support its negligent misrepresentation claim that it previously referred to in order to establish its fraud claim. Id. ¶ 25. Therefore, if the facts are insufficient to allow the fraud claim to go forward, they are also insufficient to allow the negligent misrepresentation claim to go forward.
The exhibit to Plaintiff's Amended Complaint contains no email from "Schelp," and there are only two mentions of "Schelp" in the other emails. In his December 23, 2002 email, Aaron Bonham, a J.C. Penney buyer, mentions that he is "working with `schelp' to reverse $132,000 of ASN chargebacks." First Am. Compl. Ex. 2 at 000061. In a follow-up email, Sandy Menichelli, Nazareth's Chief Financial Officer, is directed by Kevin Persons to send information to schelp@jcpenney.com. Id. at 000060. The Court does not know if Plaintiff is correct in its assertion that "Schelp" is an individual. "Schelp" could be an email alias for "Supplier Compliance Help," but that is merely speculation by the Court.
"To satisfy Rule 9(b)'s pleading requirements, the [Plaintiff] must `specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent.'" Southland Sec. Corp. v. INSpire Ins. Solutions Inc., 365 F.3d 353, 362 (5th Cir. 2004) (quoting Williams v. WMX Techs., Inc., 112 F.3d 175, 177-78 (5th Cir. 1997), cert. denied, 522 U.S. 966 (1997)). Plaintiff has attached to its pleadings copies of email communications between employees of Nazareth and J.C. Penney. First Am. Compl. at Ex. 2. Plaintiff points to these emails to support its contention that the J.C. Penney Employees made false statements. However, Plaintiff does not explicitly identify a single fraudulent statement within these twenty plus pages of email messages. Plaintiff does not even specify which of these email messages contain false statements. Instead of providing such detail, Plaintiff simply asserts that it was fraudulently induced by Defendant's "use of material misrepresentations to the Plaintiff which were false." First Am. Compl. ¶ 21. Further, all of the emails attached to Plaintiff's Complaint were sent after the TPA was signed. There is no specific reference to any statement made before the TPA was signed that could have fraudulently induced the Plaintiff to enter into the TPA. It is not enough for Plaintiff to allege merely that false statements were made "both before and after the Contract was executed." See Pl. Resp. Br. ¶ 10. Plaintiff must specify what false statements were made and "explain why the statements were fraudulent." Williams, 112 F.3d at 178. Plaintiff has not done that, and the Court and the Defendant are not required to sift through pages of documents to discover the "who, what, when, where, and how" that Plaintiff is required by Rule 9(b) to explicitly set out in its Complaint. See Goldstein v. MCI Worldcom, 340 F.3d 238, 245 (5th Cir. 2003).
The same deficiencies exist as to Plaintiff's negligent misrepresentation claim. Plaintiff has not identified a single negligent statement. Plaintiff only avers that the Defendant made representations to the Plaintiff, supplied false information for the guidance of others, and did not exercise reasonable care or competence in obtaining or communicating this information. First Am. Compl. ¶ 25. At a minimum, Rule 9(b) requires that the Plaintiff allege the particulars of time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what the Defendant allegedly obtained thereby. Benchmark Elecs., Inc., 343 F.3d at 723-24. Plaintiff gets no more specific than to allege that Mr. Bonham, a J.C. Penney buyer, made misrepresentations to Ms. Menichelli, Nazareth's Chief Financial Officer, "on various dates during 2002." Pl. Resp. Br. ¶ 12. Plaintiff does not allege which of Mr. Bonham's statements were false or where false statements were made.
Plaintiff has not met its burden to plead fraud with particularity and the Court concludes the same deficiency applies as to the negligent misrepresentation claim. Therefore, Defendant's Motion is GRANTED as to the fraud, negligent misrepresentation, and exemplary damages claims; provided, however, that Plaintiff is granted leave to replead in twenty days to allege with particularity any claims of fraud and negligent misrepresentation, and exemplary damages flowing therefrom.
The Defendant argues that Plaintiff's claim for negligent misrepresentation is also barred by the two-year statute of limitations applicable to negligent misrepresentation claims. See Tex. Am. Corp. v. Woodbridge Joint Venture, 809 S.W.2d 299, 302 (Tex.App.-Fort Worth 1991, writ. denied). The Court declines to address that question because it is unclear when an allegedly false statement was made. Further, the Defendant contends that the economic loss rule bars the Plaintiff from recovering for negligent misrepresentation. See D.S.A. Inc., v. Hillsboro Indep. Sch. Dist., 973 S.W.2d 662, 663-64 (Tex. 1998) (finding that the Plaintiff's negligent misrepresentation claim was untenable because of the economic loss rule). The Court declines to address this question since it is unclear what allegedly negligent misrepresentations were made, so the Court cannot ascertain whether a legal duty independent of the Defendant's contractual duties is implicated. See Eastman Chem. Co. v. Niro, Inc., 80 F. Supp. 2d 712, 717 (S.D. Tex. 2000).
B. BAD FAITH
Defendant moves to dismiss Plaintiff's bad faith claim for failure to state a claim upon which relief may be granted. In its Response, Plaintiff stipulates that it "has not attempted to state an independent cause of action for bad faith in its First Amended Complaint." Pl. Resp. Br. ¶ 17; See also Pl. Resp. ¶ 1. The Court finds that Plaintiff is not asserting an independent cause of action for bad faith. Therefore, Defendant's Motion is DENIED as moot as to a non-existent bad faith claim.
C. CONVERSION
Defendant contends that, as a matter of law, Plaintiff cannot properly assert a cause of action for conversion. "Conversion has been defined in various ways. Basically, conversion is a wrongful deprivation of property. . . . There can be no conversion where the owner has expressly or impliedly assented to the taking or disposition." Robinson v. Nat'l Autotech, Inc., 117 S.W.3d 37, 39-40 (Tex.App. 2003 — Dallas, writ denied) (internal citations omitted). Plaintiff alleges that the Defendant converted goods that the Defendant rejected as "defective, late, unauthorized or recalled." See Pl. Resp. Br. ¶ 18. Plaintiff's Amended Complaint alleges that at "all times material to this suit, Plaintiff retained legal title to the goods in question such that Plaintiff was considered the owner of the goods." First Am. Compl. ¶ 27 (emphasis added). When the Court considers a Rule 12(b)(6) Motion to Dismiss, the well-pled factual allegations of the Plaintiff's Amended Complaint are taken as true. Zinermon v. Burch, 494 U.S. 113, 118 (1990). Therefore, the Court will assume that Plaintiff retained legal title to the property in question.
However, even if Plaintiff had legal title to the property in question, a suit for conversion is not tenable if "the owner has expressly or impliedly assented to the taking or disposition." Robinson, 117 S.W.3d at 40. Plaintiff claims that Defendant converted proceeds from the sale of goods rejected "on the grounds that they were defective, late, unauthorized or recalled, and charged back to the supplier." Pl. Resp. Br. ¶ 18. However, the TPA has provisions covering the disposition of merchandise in each of those situations. First Am. Compl. Ex. 1 ¶¶ 6, 7, 8, 9, 11. Under the TPA, the Defendant is allowed to dispose of the goods and seek from the Plaintiff a refund of the purchase price plus costs related to the destruction or disposition of the merchandise. Id. The plain language of the TPA shows that the Plaintiff authorized the Defendant to dispose of the property in question. Plaintiff attempts to avoid these provisions of the TPA by citing to the Texas Uniform Commercial Code ("UCC"). Pl. Resp. Br. ¶ 18. However, Plaintiff's reliance on the UCC is misplaced, because the parties specified how such a situation would be handled, instead of allowing the UCC provisions to control. See Tex. Bus. Com. Code § 1.302 (2004). Therefore, the Plaintiff's conversion claim cannot be maintained and the Court GRANTS Defendant's Motion as to the conversion claim.
D. QUANTUM MERUIT
Defendant contends that Plaintiff's claim for quantum meruit must be dismissed because quantum meruit is not applicable when an express contract exists between the Plaintiff and Defendant. See Grabarkewitz v. Am. Fid. Assur. Co., No. 3:03-CV-1540-M, 2004 U.S. Dist. LEXIS 23771, *4-5 (N.D. Tex. 2004) ("Under Texas law, the existence of an express contract covering the subject matter of the claimed services is fatal to quantum meruit based claims."). However, there are exceptions to this rule.
[T]he Truly court recognized two exceptions: (1) `recovery in quantum meruit is allowed when a plaintiff has partially performed an express contract but, because of the defendant's breach, the plaintiff is prevented from completing the contract'; and (2) quantum meruit recovery is sometimes allowed when a plaintiff partially performs an express contract that also happens to be unilateral in nature.U.S. Quest, Ltd. v. Kimmons, 228 F.3d 399, 406 (5th Cir. 2000) (citing Truly v. Austin, 744 S.W. 2d 934, 936 (Tex. 1988)). Plaintiff alleges the first exception applies here because Defendant breached the agreement, Defendant's alleged breach caused the contract to be partially performed, and Plaintiff could not continue to meet its obligations under the contract, due to Defendant's alleged breach. Pl. Resp. Br. ¶ 20-21. In determining whether a motion to dismiss for failure to state a claim should be granted, the Court assumes that the facts pled by the Plaintiff are true. Zinermon, 494 U.S. at 118. Therefore, Defendant has failed to prove that there is no possible set of facts upon which Plaintiff could prevail on its claim of quantum meruit. The Court DENIES Defendant's Motion as to the quantum meruit claim.
E. SANCTIONS
Defendant requests that Plaintiff be sanctioned under Rule 11 for filing its insufficiently pleaded fraud claim. It is within the Court's discretion to award sanctions. See Fed.R.Civ.P. 11(c). The Court does not believe sanctions are warranted in this case. Therefore, Defendant's Motion for Sanctions is DENIED.