Opinion
Case No. 2:03-CV-55.
December 9, 2004
OPINION
Plaintiffs bring this action against Defendant, GE Capital Warranty Corporation ("GECWC"), alleging fraudulent and negligent misrepresentation in the inducement of contracts, breach of fiduciary duty, and breach of written and oral contracts. In an Opinion and Order issued on March 30, 2004, the Court held that GECWC was entitled to summary judgment with respect to the claims of fraudulent inducement and negligent misrepresentation. The Court denied GECWC's motion with respect to the claims of breach of fiduciary duty and breach of written and oral contracts. Now before the Court is Plaintiffs' motion to dismiss GECWC's counterclaim against M.P.T.D. Reinsurance, Matthew Dagenais, Paul Dagenais, and Timothy Dagenais. For the reasons stated below, the Court will deny Plaintiffs' motion.
I. Facts
The facts underlying this suit are set forth in detail in the Court's Opinion of March 30, 2004. The Court will not rehash those facts but will provide a brief summary. This case arises from an arrangement among the parties for the sale and reinsurance of motor vehicle warranty contracts. In 1996, GECWC proposed to Plaintiffs a reinsurance program that would provide Plaintiffs with profit-making potential. Plaintiffs later entered into contracts (the "Dealer Agreements") with GECWC whereby Plaintiffs would sell warranty contracts to vehicle purchasers and receive as compensation the difference between the retail price of the warranty contracts and a rate card amount set by GECWC. In addition, GECWC incorporated on Plaintiffs' behalf a reinsurance company, M.P.T.D. Reinsurance, in Turks and Caicos Islands and made Plaintiffs shareholders of the company. GECWC administered the daily operation of M.P.T.D Reinsurance on Plaintiffs' behalf. M.P.T.D. Reinsurance ultimately became responsible for the risk underwritten in the warranty contracts that Plaintiffs sold to their customers. In return, M.P.T.D. Reinsurance would receive a reinsurance premium.
From the beginning of this case, Plaintiffs' core grievance has been that GECWC misrepresented the amount of money that Plaintiffs would receive from this arrangement. Plaintiffs assert that M.P.T.D. Reinsurance and GECWC had an oral agreement ("M.P.T.D. Reinsurance Agreement") whereby M.P.T.D. Reinsurance would receive the full rate card amount less a 10% insurance and ceding fee. Plaintiffs allege that GECWC breached the agreement by deducting other administrative fees beyond the 10% commission.
On the other hand, GECWC denies the existence of the M.P.T.D. Reinsurance Agreement. GECWC claims that the only agreement between a GECWC entity and M.P.T.D Reinsurance is an agreement dated March 20, 1998 ("Quota Share Reinsurance Contract"), between M.P.T.D. Reinsurance and Westlake Insurance Company, Ltd. ("Westlake"), a GECWC subsidiary which is not a party to this action. Furthermore, GECWC denies that it agreed or represented that M.P.T.D. Reinsurance would receive a reinsurance premium equal to the difference between the full rate card amount less the 10% fee.
The subject matter of GECWC's counterclaim is the administrative services that GECWC provided to M.P.T.D. Reinsurance on behalf of Plaintiffs:
In acting on behalf of the Dealer Principals [i.e., the individual Plaintiffs] in their capacity as owners of MPTD, GE Capital [i.e., GECWC] maintained all of the finances of MPTD including, but not limited to, producing balance sheets and profit and loss statements for MPTD and providing periodic financial statements to the Dealer Principals. GE Capital monitored MPTD for compliance with all formalities of Turks and Caicos Islands insurance regulations. GE Capital facilitated the adjusting of all claims made under the Service Contracts. GE Capital was responsible for managing and investing the reserves to be used to pay claims and, ultimately, the remaining monies to be distributed as underwriting profits to the owners of MPTD.
Both parties agree that GECWC provided such services to M.P.T.D. Reinsurance on behalf of Plaintiffs.
(2d Am. Compl. ¶ 39.) GECWC claims that it provided the above services to M.P.T.D. Reinsurance on behalf of Plaintiffs without compensation, and thus Plaintiffs have been unjustly enriched. GECWC therefore asserts a claim for the reasonable costs associated with the work that GECWC provided to M.P.T.D. Reinsurance. "[T]o the extent that M.P.T.D. Reinsurance and/or M.P.T.D. Reinsurance Principals [i.e., the individual Plaintiffs] are successful in their claims, GECWC hereby makes a counterclaim for unjust enrichment to be compensated for the work that M.P.T.D. Reinsurance and/or the M.P.T.D. Reinsurance Principals contend was done on their behalf by GECWC." (Countercl. ¶ 11.)
II. Motion to Dismiss Standard
An action may be dismissed if the complaint fails to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). The moving party has the burden of proving that no claim exists. Although a complaint is to be liberally construed, it is still necessary that the complaint contain more than bare assertions of legal conclusions. Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir. 1993) (citing Scheid v. Fanny Farmer Candy Shops, Inc., 859 F.2d 434, 436 (6th Cir. 1988)). All factual allegations in the complaint must be presumed to be true, and reasonable inferences must be made in favor of the non-moving party. 2A James W. Moore, Moore's Federal Practice, ¶ 12.34[1][b] (3d ed. 1997). The Court need not, however, accept unwarranted factual inferences. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987). Dismissal is proper "only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73, 104 S. Ct. 2229, 2232 (1984) (citing Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 101-02 (1957)).III. Discussion
Plaintiffs move to dismiss GECWC's counterclaim on three grounds: (1) the existence of enforceable contracts bars the unjust enrichment claim; (2) GECWC's breach of fiduciary duty bars the claim for recoupment; and (3) the counterclaim preserves no additional rights for GECWC. The Court will address each ground in turn.
A. Unjust Enrichment
Plaintiffs argue that GECWC is barred from bringing the unjust enrichment claim because the parties have three enforceable contracts (i.e., the Dealer Agreements, the M.P.T.D. Reinsurance Agreement, and the Quota Share Reinsurance Contract) that govern the services that GECWC provided to M.P.T.D. Reinsurance. Plaintiffs claim that Sections 2 and 3 of the Dealer Agreements expressively govern the terms of compensation and neither section states that, in addition to the 10% fee, GECWC is to be compensated for the services provided to M.P.T.D. Reinsurance.
On the other hand, GECWC claims there is no contract between GECWC and M.P.T.D. Reinsurance. GECWC denies the existence of the M.P.T.D. Reinsurance Agreement. In addition, GECWC claims that both the Dealer Agreements and the Quota Share Reinsurance Contract are irrelevant to this counterclaim because they were not executed by the defendants named in the counterclaim. Furthermore, GECWC argues that the Dealer Agreements only cover the sale of extended warranty contracts and do not govern the services that GECWC provided to M.P.T.D. Reinsurance.
Because recovery based on unjust enrichment is a state issue, the Court must apply Michigan law. 28 U.S.C. § 1738. Michigan law provides for recovery based on unjust enrichment. "A court may imply a contract in order to prevent unjust enrichment, as long as there is no express contract covering the same subject matter." PSA Quality Sys. (Toronto), Inc. v. Sutcliffe, 256 F. Supp. 2d 698, 702 (E.D. Mich. 2003). On the other hand, the court may not award recovery based on unjust enrichment if a valid contract exists. Terry Barr Sales Agency, Inc., v. All-Lock Co., Inc., 96 F.3d 174, 181 (6th Cir. 1996) ("Where the parties have an enforceable contract and merely dispute its terms, scope, or effect, one party cannot recover for promissory estoppel and unjust enrichment.").
The elements of a claim for unjust enrichment are: (1) receipt of a benefit by the defendant from the plaintiff and (2) an inequity resulting to plaintiff because of the retention of the benefit by defendant. In such instances, the law operates to imply a contract in order to prevent unjust enrichment. However, a contract will be implied only if there is no express contract covering the same subject matter.Barber v. SMH (US), Inc., 202 Mich. App. 366, 375, 509 N.W.2d 791, 796 (1993) (citations omitted).
In Cascade Electric Co. v. Rice, 70 Mich. App. 420, 245 N.W.2d 774 (1976), a contractor sued a building owner for compensation of the additional work allegedly performed at the owner's request. The court upheld the contractor's claim because the extra work was not contemplated in the original contract and the owner knew the work was being done.
Appellant [i.e., the contractor] states, accurately, that while an express contract is in force between the parties, a contract cannot be implied in law which covers the same subject matter. We agree. Thus in this case, if Rice [i.e., the contractor] had performed the original contract exactly according to its terms, and then had sought recovery above and beyond the contract on a Quantum meruit theory claiming that the work he had performed was worth more than the contract provided, . . . Rice would have no claim.
However, the rule does not apply in a case such as this where recovery is sought for items not contemplated in the original contract.Id. at 426, 245 N.W.2d at 776-777 (citations omitted).
In the instant case, the existence of the M.P.T.D. Reinsurance Agreement is a disputed fact. As a result, the Court will not grant Plaintiffs' motion to dismiss because they base their argument on the existence of the M.P.T.D. Reinsurance Agreement. For the same reason, the Court will not award recovery based on unjust enrichment to GECWC at this stage because the Court is unable to ascertain whether GECWC's services were beyond the scope of the original contract, if there is any. Indeed, the existence of the M.P.T.D. Reinsurance Agreement and whether GECWC's services were beyond the scope of the agreement may be questions for the jury.
Plaintiffs also argue that the Dealer Agreements and the Quota Share Reinsurance Contract bar GECWC's unjust enrichment claim. The Court disagrees. First, these two agreements are irrelevant to the counterclaim because they were not executed by GECWC and the defendants named in the counterclaim. In addition, the Dealer Agreements govern the sale of warranty contracts rather than reinsurance arrangements. Indeed, Plaintiffs even acknowledged in their complaint that the Dealer Agreements were separate and distinct from the M.P.T.D. Reinsurance Agreement.
B. Breach of Fiduciary Duty and the Duty to Disclose
Plaintiffs claim that GECWC's control over Plaintiffs created a fiduciary relationship among the parties and that such a relationship imposes upon GECWC a duty to disclose. Plaintiffs argue that, because GECWC failed to disclose the additional fees deducted, it cannot seek to recoup the fees associated with the value of the services rendered. Plaintiffs argue in the alternative that, regardless of whether a fiduciary duty exists, GECWC's superior knowledge in the insurance business imposes a duty to disclose upon GECWC.
On the other hand, GECWC claims that it has no duty to disclose because it is a question of fact as to whether a fiduciary relationship exists among the parties. GECWC argues in the alternative that it had no duty to disclose because Plaintiffs never asked for any disclosure. Finally, GECWC argues that Plaintiffs fail to show that they could not have discovered the non-disclosed information through the exercise of due care.
It is well established that the duty to disclose arises when a fiduciary duty exists. Chiarella v. United States, 445 U.S. 222, 228, 100 S. Ct. 1108, 1114 (1980) ("[T]he duty to disclose arises when one party has information `that the other [party] is entitled to know because of a fiduciary or other similar relation of trust and confidence between them.'"). However, in its Opinion of March 30, 2004, the Court decided that it is a question of fact as to whether a fiduciary relationship exists among the parties. Accordingly, the Court is unable to decide at this stage whether GECWC owed Plaintiffs a duty to disclose the additional fees it deducted.
Moreover, Plaintiffs cited authorities stating that the duty to disclose may arise in situations in addition to a fiduciary relationship. However, Plaintiffs have not cited, and the Court is not able to locate, any authority that specifically imposes a duty to disclose upon a party merely because the party has superior knowledge and control in a commercial setting. Indeed, Courts are more likely to find the duty to disclose in the context of fraudulent concealment. However, in its Opinion of March 30, 2004, the Court dismissed Plaintiffs' allegations of fraudulent inducement and negligent misrepresentation. Therefore, Plaintiffs cannot assert any argument that arises solely from these claims.
C. Redundant Counterclaim
Plaintiffs assert that the counterclaim mirrors the opposite of Plaintiffs' claims and preserves no additional rights on behalf of GECWC. However, GECWC argues the opposite. GECWC claims that in the event that it wins the breach of contract claim and loses the breach of fiduciary duty claim, the Court may still find for GECWC on its counterclaim. The Court agrees with GECWC. If it finds for GECWC on the breach of contract claim, the Court will determine that GECWC should be compensated for the work provided to M.P.T.D. Reinsurance. If it finds for Plaintiffs on the breach of fiduciary duty claim, the Court will determine that GECWC had a duty to disclose the additional fees. However, GECWC's failure to disclose does not necessarily mean GECWC can not retain any of the additional fees it deducted. Rather, the Court may still award GECWC those fees if the Court finds that Plaintiffs have been unjustly enriched by retaining the benefit of GECWC's work.
IV. Conclusion
For the foregoing reasons, the Court will deny Plaintiffs' motion to dismiss Defendant's counterclaim.
An Order consistent with this Opinion will be entered.