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finding a common nucleus of operative fact between plaintiff's FLSA claim for unpaid overtime compensation and defendant's counterclaim that plaintiff was defrauding the company during the same period of time
Summary of this case from Brewer v. Affordable Transp., Inc.Opinion
Case No.: 02-23055-CIV-ALTONAGA/Bandstra
November 14, 2003
David H. Spalter, Esq., Law Offices of David H. Spalter, Davie, for Plaintiff
Ronald Bradley Kurtz, Esq., Law Offices of Ron Bradley Kurtz, North Miami, for defendants
THIS CAUSE came before the Court upon Plaintiff, Corey Targia's Motion to Dismiss or, in the Alternative, for a More Definite Statement of, Defendants' Counterclaim and Incorporated Memorandum of Law (D.E. 16). The Court has heard oral argument and has carefully reviewed the Motion, the response and reply memoranda, and applicable law.
I. BACKGROUND
Plaintiff, Corey Targia ("Targia"), alleges that he was employed by U.S. Alliance Management Corp., d/b/a U.S. Security, a Florida corporation ("US Alliance"), as Operations Manager in Miami, Florida beginning in December, 1998, and subsequently in Orlando, Florida, until November 2001, when his employment was terminated. Defendant, Bahram Sedaghat, was a Director of US Alliance, and had the authority to hire, fire, determine the work schedules and set the rate of pay of employees; and control the finances and operations of US Alliance. Targia has brought a one-count Complaint alleging that Defendants failed to pay him overtime wages in violation of the Fair Labor Standards Act, 29 U.S.C. § 201, et seq. ("FLSA"). Targia alleges that for several workweeks during his employment with Defendants, he worked in excess of forty hours and was not paid at a rate of at least one and one-half his regular rate of pay, as is required by Section 7 of the FLSA. Targia seeks a judgment for compensatory damages, liquidated damages and attorneys' fees and costs pursuant to the FLSA.
Defendants have filed a Counterclaim in five counts seeking compensatory and punitive damages. Defendants allege that Targia was indeed employed by US Alliance, and that close to the end of his employment, Defendants discovered that Targia had made the following misrepresentations to the company: (1) that he had worked full-time, when, in fact, he had worked "on a very limited basis or not at all;" and (2) that an employee working under Targia's supervision had worked full-time when, in fact, he, too, had worked "on a very limited basis or not at all." US Alliance, in reliance on the misrepresentations, paid Targia and the other employee salaries as if they had been working full-time. Furthermore, Defendants allege that Targia conspired with yet another employee to divert checks from clients of US Alliance (that should have been directed to US Alliance headquarters for deposit) to that employee. That employee allegedly cashed the checks and shared the proceeds with Targia, or otherwise gave Targia some benefit from the illicit arrangement.
Count I of the Counterclaim alleges that the alleged conspiracy between Targia and another employee was an attempt to defraud Defendants in that Targia intentionally misrepresented that he and this other employee were working full-time for US Alliance to induce Defendants to pay them salaries based on full-time work, when they were actually not working full-time. Count II is a claim for quantum meruit. This count alleges that Targia and another employee were unjustly enriched at Defendants' expense when Defendants paid them a salary based on full-time work that was never performed. Count III, for breach of fiduciary duty, alleges that as an employee, Targia had a fiduciary relationship with Defendants, and that therefore Defendants reposed certain trust and confidence in him. Defendants allege that Targia breached his fiduciary duty to Defendants by misrepresenting the extent of the work that he and another employee performed, and by misappropriating company checks. Count IV is a claim for conversion based on Targia's involvement with the misappropriation of US Alliance checks. Finally, Count V, for "money received," seeks return of the monies allegedly received by Targia and another employee from approximately six US Alliance clients, that were intended for the use of US Alliance.
II. PLAINTIFF'S MOTION TO DISMISS OR, IN THE ALTERNATIVE, FOR A MORE DEFINITE STATEMENT OF, DEFENDANTS' COUNTERCLAIM A. Applicability of the Economic Loss Rule to Counts I and III
Targia argues that Count I (fraud) and Count III (breach of fiduciary duty) of the Counterclaim are barred by the economic loss rule under Florida law because Targia and Defendants had a contractual employment relationship, and such tort claims for solely economic losses cannot be raised in a contractual context. Admittedly, under the economic loss rule, where a plaintiff seeks purely economic losses, without a claim for personal injury or damage to property, plaintiff's sole remedy lies in contract, not tort. Casa Clara Condominium Assoc. v. Charley Toppino and Sons, Inc., 620 So.2d 1244, 1244-46 (Fla. 1993). However, because the rule is premised on "the basic difference between contract law, which protects expectations, and tort law, which is determined by the duty owed the injured party," an exception to the economic loss rule has been carved out for tort actions which are independent of the contractual breach. Id. at 1246; see PK Ventures, Inc. v. Raymond James Assocs., 690 So.2d 1296, 1297 n. 3 (Fla. 1997); HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So.2d 1238, 1239 (Fla. 1996). Thus, the economic loss rule does not bar tort actions where a legal duty independent of the contract itself has been violated. See, e.g., HTP, Ltd., 684 So.2d at 1239.
Count I is based on Targia's alleged misrepresentations, and reliance thereon by US Alliance, regarding the extent of work Targia performed for US Alliance, as well as the extent of work that another ghost employee working under Targia's supervision performed for US Alliance. Because payment for services rendered is a subject that is governed by the parties' employment agreement, and because Defendants have not alleged personal injury or injury to property, Defendants are limited to their contract in pursuing claims against Targia for failure to perform the job duties for which he was compensated under his contract with US Alliance. The economic loss rule, then, bars the fraud claim as it pertains to Targia's breach of contract arising from his failure to perform job duties he was hired to perform.
It is not as easily discerned that the economic loss rule bars the fraud claim based on Targia's misrepresentations relating to the hours worked by the other ghost employee. The other employee is not a party to this case, and therefore, any contract between US Alliance and this other employee is not the basis for application of the economic loss rule. Moreover, the written employment agreement between Targia and US Alliance is not a part of the Counterclaim, and therefore, it cannot be determined whether Targia's misrepresentations relating to another employee's work hours constitute a breach of any express or implied provision of Targia's contract, which would then presumably bar this part of the claim under the economic loss rule.
For the same reasons already discussed, the allegations of Count III, relating to Targia's misrepresentations that he was working full-time, are barred by the economic loss rule, while his misrepresentations relating to another employee are not barred at this stage of the proceedings. The remaining premise on which Count III is based is that Targia, and another employee acting jointly with Targia, misappropriated checks belonging to US Alliance and intended for the use of US Alliance. Targia's alleged fiduciary duty not to misappropriate company checks is not alleged to be Targia's contractual duty under the employment agreement. It is unclear whether the duty not to commit theft against his employer is separate and apart from Targia's employment agreement because the terms of that agreement are unknown.
Under Florida law, "[a]n embezzlement whereby the defendant obtains possession of the plaintiff's funds and thereafter converts the funds to his own use will justify an action for civil theft," Nerbonne, N. V, v. Lake Biyan Int'l Properties, 689 So.2d 322, 326-27 (Fla. 5th DCA 1997) (citing Tinwood, N.V. v. Sun Banks, Inc., 570 So.2d 955 (Fla. 5th DCA 1990), disapproved of on other grounds in State v. Lucas, 600 So.2d 1093, 1096 (Fla. 1992)), and "the mere existence of a contractual relationship between the parties does not preclude actions for civil theft and conversion." Id. (citing Tinwood, 570 So.2d at 961; Nova Flight Center, Inc. v. Viega, 554 So.2d 626, 627 (Fla. 5th DCA 1989)); see Masvidal v. Ochoa, 505 So.2d 555, 556 (Fla. 3d DCA 1987), Although the undersigned has not located any cases discussing the applicability of the economic loss rule to allegations of theft in the employment context, courts have repeatedly held that the economic loss rule does not preclude conversion and civil theft claims when a plaintiff alleges misappropriation or embezzlement of funds, or thievery that goes beyond, and is independent from, a failure to comply with the terms of a contract. One of the factors courts examine in determining whether a civil theft claim is nothing more than a breach of contract claim is whether the compensatory damages sought are identical in both counts. See In re Naturally Beautiful Nails, Inc., et al. v. Wal-Mart Stores, Inc., 262 B.R. 131, 135 (M.D. Fla. 2001); Sarkis v. Pafford Oil Co., Inc., et al., 697 So.2d 524, 528 (Fla. 1st DCA 1997),
See, e.g., Ishii v. Welty, et al, 1998 WL 1064846, *8-9 (M.D. Fla. 1998) (finding that even though contract existed between bank and customer, customer's claim against bank was not barred by the economic loss rule where customer alleged that bank employees assisted in the unauthorized conversion of the customer's funds by endorsing and cashing checks payable to the customer and ultimately depositing the checks into one of the defendant bank employee's personal account for his personal use); Duncan v. Kasim, Inc., 810 So.2d 968, 971 (Fla. 5th DCA 2002) (finding that conversion claim was not barred by economic loss rule where plaintiff alleged defendant sold or converted plaintiff's personal property, knowing the items belonged to plaintiff and accepted the benefits of the sale); Pershing Industries, Inc. v. Estate of Victoria Sanz, 740 So.2d 1246, 1248 (Fla. 3d DCA 1999) (finding that conversion and civil theft claims were independent torts separate and apart from the contract, and thus were not barred by the economic loss rule); Alex Hofrichter, P.A. v. Zuckerman Vendetti, P.A., et al, 710 So.2d 127, 129 (Fla. 3d DCA 1998) ("In our view, an action for conversion and civil theft will lie where there is a claim that the defendant has misappropriated or embezzled trust funds, and . . . the claim is that partnership property was converted to personal use.") (emphasis added); Nerbonne, 689 So.2d at 326-27 (economic loss rule did not bar mortgagor's action against mortgagee for mortgagee's fraud and civil theft in allegedly selling mortgage property to corporation at inflated price shortly after mortgagee's acquisition thereof); Escudero v. Hasbun, 689 So.2d 1144, 1147 (Fla. 3d DCA 1997) (finding that economic loss rule did not preclude civil theft claim where plaintiff alleged that the defendant misappropriated proceeds of a certificate of deposit which, pursuant to marital settlement agreement, were to have been paid over to the plaintiff); Burke v. Napieracz, 674 So.2d 756, 758-59 (Fla, lst DCA 1996) (civil theft claim was not barred by the economic loss rule where complaint alleged that authorized signatory of plaintiff's personal savings account, who agreed to receive and deposit plaintiff's monthly social security checks and forward funds to plaintiff in Belize, did not merely fail to perform under agreement, but engaged in "an affirmative and intentional act of converting the funds to his own use by allegedly stealing the monies to which he was entrusted") (emphasis added). See also Future Tech International, Inc. v. Tae II Media, Ltd., et al., 944 F. Supp. 1538, 1569 (S.D. Fla. 1996) (finding that claim for civil theft of trade secrets based on alleged misappropriation of a design and a customer list was not barred by the economic loss rule because it was independent tort that fell outside the scope of breach of the contract, which only addressed exclusivity and sale of computer equipment); Lajos v. duPont Publishing, Inc., et al., 888 F. Supp. 143, 145-46 (M.D, Fla. 1995) (illustrator's civil theft claim against publisher was not barred by economic loss rule, as illustrator alleged that publisher's actions in failing to return artwork to illustrator and reproducing artwork without permission were independent of publisher's rights or obligations under production and licensing agreement by which publisher was allegedly to use work for magazine cover and then return originals to illustrator, and illustrator alleged that publisher converted these property rights for its own use).
In this case, Targia raises the economic loss rule, but he has failed to satisfy his burden of showing the terms of the employment contract that he maintains bar the Defendants' Counterclaim. There is no indication that Defendants would have an adequate contractual remedy for the alleged theft, and the compensatory damages for a breach of contract ( i.e. reimbursement for payment made to Targia for services that he never rendered as an employee) are not identical to those for a breach of fiduciary duty ( i.e. return of the funds Targia allegedly obtained from negotiating US Alliance checks). Therefore, the record does not support a finding that the economic loss rule bars the claim involving misappropriation of checks.
B. More Definite Statement of the Claims Stated in Counts I, II and III of the Counterclaim
Targia convincingly argues that if Counts I and III of the Counterclaim are not dismissed based on the economic loss rule, Defendants should be required to provide a more definite statement of these two counts as well as a more definite statement of Count II. Counts I, II and III are based on fraudulent conduct that must be, but is not currently pled with particularity pursuant to Rule 9(b) of the Federal Rules of Civil Procedure. FED. R. CIV. P. 9(b). Accordingly, Defendants shall amend these counts to include the following specific factual allegations concerning the alleged fraudulent misrepresentations made by Targia: (1) the date(s), time(s) and place(s) that they were made; (2) the name(s) of the person(s) to whom they were made; (3) the method(s) of communication; and (4) the name of the employee under Targia's supervision to whom the misrepresentations related. With regard to Targia's participation in misappropriation of checks, which is a basis for Count III, the Amended Counterclaim shall provide the name of the second unidentified employee involved and provide the date(s), time(s) and place(s) that the alleged misappropriation occurred.
C. Count V of the Counterclaim for "Money Had and Received"
Defendants have alleged in their Counterclaim that Targia is liable for "money received" because he fraudulently received and cashed negotiable checks from approximately six clients of US Alliance that were intended for the use of US Alliance. Targia argues that Count V of the Counterclaim should be dismissed because a claim for "money received" is not a cognizable cause of action in Florida.
To the contrary, there is a cause of action for "money had and received" in Florida; it is the equivalent to an action for unjust enrichment. See, e.g., Hall v. Humana Hosp. Daytona Beach, 686 So.2d 653, 656 (Fla. 5th DCA 1996) (recognizing a cause of action for "money had or received" as the equivalent to a cause of action for unjust enrichment); Sharp v. Bowling, 511 So.2d 363, 364-65 (Fla. 5th DCA 1987) (recognizing a cause of action for "money had and received" as an action at law, although the remedy is "equitable in nature and is founded upon the equitable principle that no one ought to be unjustly enriched at the expense of another"). In order to state a cause of action for "money had and received," a plaintiff must allege that defendant has money belonging to plaintiff which was "erroneously paid or received" by defendant. Sharp, 511 So.2d at 364-65; see also Hall, 686 So.2d at 656 (an action for "money had and received" is "an equitable remedy requiring proof that money had been paid due to fraud, misrepresentation, imposition, duress, undue influence, mistake, or as a result of some other grounds appropriate for intervention by a court of equity"). Defendants make these allegations, and accordingly, Count V of the Counterclaim states a cause of action.
D. Supplemental Jurisdiction Pursuant to 28 U.S.C S 1367(a) Over the Claims Raised in Counts III. IV and V of the Counterclaim
Targia also maintains that the Court should decline to exercise supplemental jurisdiction under 28 U.S.C. § 1367 over Counts III (breach of fiduciary duty), IV (conversion) and V (money received) of the Counterclaim, because these claims arising from Targia's alleged misappropriation of company checks involve transactions and occurrences different from those which form the basis of Targia's unpaid overtime compensation claim under the FLSA. Targia further notes that he is currently prosecuting a defamation action against Defendants in Florida state court that is grounded upon Defendants' publication to prospective employers of Targia that Targia misappropriated checks. According to Targia, Defendants' counterclaims in Counts III, IV and V arise from the same facts as the state court action, and thus, the Court's exercise of jurisdiction over these claims will "create a risk of inconsistent findings of fact on the same factual issues in two different forums." Plaintiff's Motion, p. 5.
Contrary to Targia's assertions, the counterclaims based on misappropriation of checks arise from the same nucleus of operative facts as Targia's FLSA claim. Defendants contend that Targia is not entitled to overtime compensation because during the time that he claims to have been performing legitimate work duties for US Alliance, he was misappropriating company checks and otherwise defrauding the company. If the Court were to decline supplemental jurisdiction over these claims, Defendants would still be permitted to, and presumably would, present arguments and evidence relating to Targia's alleged misappropriation of US Alliance checks to defend against Targia's overtime compensation claim. Such evidence, if presented, would be relevant to show whether or not Targia actually worked overtime hours.
That the same evidence will be presented in Targia's separate state court lawsuit for defamation does not diminish its relevance here or compel a refusal to exercise supplemental jurisdiction. Indeed, the issues in the federal lawsuit and the state lawsuit are significantly different. The issues in the state lawsuit involve defamation, and any evidence of Targia's alleged misappropriation of checks will be relevant for the purpose of establishing whether or not Defendants' accusations against Targia are false, and not, as in this case, for the purpose of establishing the hours worked by Targia.
Finally, the breach of fiduciary duty, conversion and money received claims do not raise complex or novel issues of state law, nor do the issues of state law predominate over the issues of federal law.
III. CONTINUANCE OF PRETRIAL DEADLINES AND THE TRIAL DATE
On August 28, 2003, the Court entered an Order resetting certain pretrial deadlines and resetting the trial in this case to December 15, 2003 ( D.E. 32), It is now appropriate to continue the trial and pretrial deadlines for an additional three months to permit the following to occur: (1) Defendants to amend the Counterclaim to include a more definite statement of Counts I, II and III; (2) the parties to conduct any additional discovery on the Amended Counterclaim; and (3) Targia to respond to Defendants' Amended Counterclaim.
IV. CONCLUSION
For all the foregoing reasons, it is hereby ORDERED AND ADJUDGED as follows:
1. Plaintiff/Counter-Defendant, Corey Targia's Motion to Dismiss, or in the Alternative, for a More Definite Statement of, Defendant/Counter-Plaintiffs' Counterclaim is GRANTED in part. Counts I, II and III of Defendants' Counterclaim are DISMISSED with leave to amend in conformity with this Order. Within twenty (20) days of the date of this Order, Defendants shall file an Amended Counterclaim, which shall include a more definite statement of Counts I, II and III.
2. Targia shall file a response to the Amended Counterclaim within ten 10) days of service.
3. Trial in this matter is reset for the two-week trial period beginning March 22, 2004, Calendar Call is reset for 9:05 a.m. on March 16, 2004. The parties shall abide by the following modified pre-trial schedule:January 16, 2004 January 21, 2004 February 13, 2004 February 27, 2004 All discovery must be completed. All pretrial motions and memoranda of law must be filed. Joint Pretrial Stipulation must be filed. Jury Instructions and Verdict Forms or Proposed Findings of Fact and Conclusions of Law must be filed. DONE AND ORDERED in Chambers at Miami, Miami-Dade County, Florida