Opinion
Civil Action No. 02-2216-JAR
January 26, 2004
MEMORANDUM AND ORDER DENYING MOTION TO DISMISS COUNTERCLAIMS
This comes before the Court on counterclaim Defendants' Motion to Dismiss. (Doc. 75). Counterclaim Defendants Safetech International, Inc. (Safetech) and Gaylen Davenport move to dismiss counts eight and nine of Air Products and Controls Inc.'s (Air Products) counterclaim for fraud pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim. Safetech and Davenport contend that Air Products has failed to plead fraud with the requisite specificity required by Fed.R.Civ.P. 9(b); that the so-called fraudulent representations of Safetech or Davenport are true, not fraudulent representations; that the alleged fraudulent misrepresentions are opinions and not actionable; and that the alleged fraudulent misrepresentations have been taken out of context. For the reasons set forth below, the motion is denied. A. Counts Eight and Nine for Fraud Fail to Comply with Fed.R.Civ.P. 9(b)
Safetech and Davenport argue that counts eight and nine for fraud do not satisfy Fed.R.Civ.P. 9(b) and move the court to dismiss the counts as a remedy. Fed.R.Civ.P. 9(b) provides, "in all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other conditions of mind of a person may be averred generally." Allegations of fraud must "set forth the time, place, contents of the false representation, and the identity of the party making the false statements and the consequences thereof." The purpose of Rule 9(b) is "to afford defendant fair notice of plaintiff's claims and the factual ground upon which [they] are based. . . ."
Safetech/Davenport's Memorandum in Support of their Motion to Dismiss, filed 7/17/2003, Doc. 76.
Koch v. Koch Industries, Inc., 203 F.3d 1202, 1236 (10th Cir. 2000) (citing Lawrence Nat'l Bank v. Edmonds (In re Edmonds), 924 F.2d 176, 180 (10th Cir. 1991)).
Koch, 203 F.3d at 1236-37 (citation omitted).
Specifically, Safetech and Davenport argue that Paragraphs 34 and 38 of Air Products' Second Amended Answer and Counterclaims do not satisfy the requirement of setting forth a specific time, place, and specific contents of the alleged misrepresentations because they are essentially unchanged from the previous version of Air Products' counterclaims, which this Court has already dismissed as insufficient to support a fraud claim. Curiously, Safetech and Davenport do not address allegations added to the fraud counts by Air Products in its amended answer.
Safetech/Davenport's Memorandum in Support of their Motion to Dismiss, filed 717/2003, Doc. 76.
Air Products counters by noting that it "has supplemented its original fraud allegations with seven full paragraphs (covering almost five pages) of additional detail." Among the supplemental materials are the time, place and specific contents of the alleged fraudulent actions and the identity of the individual making the false statement. For example, in paragraph 35(b), Air Products alleges that in mid-December 2001, Davenport made telephone misrepresentations that a substantial sum of cash would soon be available, knowing the representations were false, and further that Air Products reasonably relied upon such misrepresentation and suffered damage. Similar specific allegations permeate the Second Amended Answer and Counterclaims. Simply, Air Products' allegations satisfy the "who, what, where, and when" of the alleged fraud, and accordingly comport with Rule 9(b)'s pleading requirements.
Suggestions in Opposition by Defendant Air Products and Controls, Inc. to Motion to Dismiss, filed 8/11/2003, Doc 82.
See, e.g., Ramada Franchise Sys., Inc. v. Tresprop, Ltd., 188 F.R.D. 610, 612 (D. Kan. 1999).
B. The Alleged Fraudulent Misrepresentations are True and Not Actionable
Safetech and Davenport argue that so-called fraudulent misrepresentations in counts eight and nine of Air Products' Answer and Counterclaims are not fraudulent at all, but rather truthful and must be dismissed for failure to state a claim under Fed.R.Civ.P. 12(b)(6). Motions to dismiss are disfavored; the court will dismiss a cause of action for failure to state a claim only when it appears beyond a doubt that the plaintiff can prove no set of facts in support of the theory of recovery that would entitle him or her to relief, or when an issue of law is dispositive. In considering a motion to dismiss, the court accepts as true all well-pleaded facts, as distinguished from conclusory allegations, and all reasonable inferences from those facts are viewed in favor of the plaintiff. Such a motion is to be decided on the pleadings alone, not on materials outside the pleadings. The issue in resolving a motion such as this is not whether the plaintiff will ultimately prevail, but whether he or she is entitled to offer evidence to support the claims.
Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Maher v. Durango Metals, Inc., 144 F.3d 1302, 1304 (10th Cir. 1998).
Neitzke v. Williams, 490 U.S. 319, 326 (1989).
Maher, 144 F.3d at 1304.
Swanson v. Bixler, 750 F.2d 810, 813 (10th Cir. 1984).
Fed.R.Civ.P. 12(b); Prager v. LaFaver, 180 F.3d 1185, 1188 (10th Cir. 1999).
Scheuer v. Rhodes, 416 U.S. 232, 236 (1974), overruled on other grounds, Davis v. Scherer, 468 U.S. 183 (1984); Ruiz v. McDonnell, 299 F.3d 1173, 1181 (10th Cir. 2002).
In particular, Safetech and Davenport quarrel with Air Products' allegation that Davenport promised an $80,000 payment that was never made. To support their argument, Safetech and Davenport point to Exhibit A, which they claim proves Air Products received more than $80,000 in payment. Counterclaim Defendants' argument is inappropriate for a motion to dismiss. Such a motion is to be decided on the pleadings alone, yet Counterclaim Defendants seek dismissal based on a documentary exhibit, which is clearly outside the pleadings. Moreover, factual disagreements, such as those alleged by Safetech and Davenport, are inappropriate for resolution at the pleading stage and may be addressed in a summary judgment motion. The Court has broad authority to convert a motion to dismiss into a motion for summary judgment pursuant to Fed.R.Civ.P. 12(b)(6), but declines to do so in the instant case because the parties have not requested the Court to do so.
Raymark Indus., Inc. v. Stemple, 714 F. Supp. 460, 468 (D. Kan. 1988).
C. The Alleged Fraudulent Misrepresentations are Mere Opinion and not Actionable
Safetech and Davenport argue that Air Products' claims for fraud are mere opinion and not actionable. To be actionable, misrepresentations must relate to some material or present pre-existing fact, and cannot ordinarily be predicated on unfilled promises or statements as to future events, nor may the statements be mere puffing. However, fraud may be based on future promises, if circumstances show an actual fraudulent intent at the time the representations regarding a future event are made. Furthermore, when false statements concerning profits or income are joined with statements of past income, or other facts which are apt to affect future income, a court may hold that the statement as to future profits constitutes actionable fraud.
Edwards v. Phillips, 360 P.2d 23, 26 (Kan. 1961).
Fisher v. Mr. Harold's Hair Lab, Inc., 527 P.2d 1026, 1033 (Kan. 1974).
Edwards, 360 P.2d at 26.
Fisher, 215 Kan. At 1035.
Safetech and Davenport argue that Air Products' allegations are "nothing more than obvious statements of opinion . . . which under Kansas law and good sense do not constitute actionable fraud." Yet, Counterclaim Defendants do not specify which of the allegations is an opinion. Nor do Counterclaim Defendants articulate why the allegations should be termed opinions, rather than facts. Presumably, Safetech and Davenport take issue with those allegations of Air Products that deal with future income or profit. Air Products correctly notes that its allegations refer to the present or future ability of Safetech's customers to pay, both of which may constitute facts, as distinguished from opinion or sales puffing, and be the basis for a fraud claim under Kansas law. Accepting as true all of Air Products' well-pleaded facts, and viewing all reasonable inferences from those facts in its favor, this Court cannot say that Air Products' allegations of fraudulent misrepresentations are mere opinion.
Additionally, Safetech and Davenport assert that Air Products was not justified in relying on any statements made by Davenport. Kansas law is clear, however, that "[a] recipient of fraudulent misrepresentations is justified in relying upon its truth without investigation, unless he knows of or has reason to know of facts which make his reliance unreasonable." Safetech and Davenport contend that because the parties had used the exact same process previously, "it is inconceivable that APC could look the court in the face and claim it is unable to form its own opinion as to the inner workings of this process." Notwithstanding the fact that Safetech and Davenport again resort to evidence outside the pleadings to support their motion to dismiss, their argument is inapposite. The parties had indeed used the exact same process previously; only on previous occasions, the process had worked. Far from making Air Products' reliance unreasonable, the fact that the parties had successfully used the same process in the past, only made Air Products' reliance upon Safetech and Davenport's word more reasonable.
Goff v. Am. Savings Ass'n, 561 P.2d 897, 903 (Kan.Ct.App. 1977).
D. The Alleged Fraudulent Misrepresentations are Taken out of Context
Safetech and Davenport further assert that alleged fraudulent misrepresentations in Air Products' fraud counts are taken out of context and do not support a cause of action for fraud. In an attempt to attack Air Products' allegations, Safetech and Davenport continue to rely on documents from outside the pleadings. Furthermore, Safetech and Davenport are essentially arguing that Air Products' claims should be dismissed based on factual disagreements, an argument wholly inappropriate in a motion to dismiss where the nonmovant is given the benefit of all reasonable inferences. The Court cannot say that Air Products can prove no set of facts in support of its fraud counts that would entitle it to relief, and Counterclaim Defendant's motion to dismiss is denied accordingly.
See Raymark Indus., 714 F. Supp. at 468.
IT IS THEREFORE ORDERED BY THE COURT that Counterclaim Defendants' Motion to Dismiss Counts eight and nine of the Second Amended Answer and Counterclaims (Doc. 75) shall be DENIED.
IT IS SO ORDERED.