203 F.R.D. 181 | E.D. Pa. | 2001
MEMORANDUM
Plaintiffs brought this law suit after losing money in an allegedly fraudulent investment scheme.
I. BACKGROUND
The facts of this case are complex, and I mention here only those facts necessary to adjudicate these motions to dismiss. According to the complaint, around 1998, defendants Hatfield, Burkat, and Keck
Monument Financial opened an account for the investment funds at United Bank on or about January 22, 1999,
II. ANALYSIS
A Standard for Motion to Dismiss
Rule 12(b) of the Federal Rules of Civil Procedure (2001) provides that “the following defenses may at the option of the pleader be made by motion: ... (6) failure to state a claim upon which relief can be granted.” In deciding a motion to dismiss under Rule 12(b)(6), a court must take all well pleaded facts in the complaint as true and view them in the light most favorable to the plaintiff. See Jenkins v. McKeithen, 395 U.S. 411, 421-422, 89 S.Ct. 1843, 1849, 23 L.Ed.2d 404, 416-417 (1969). Because the Federal Rules of Civil Procedure require only notice pleading, the complaint need only contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a). A motion to dismiss should be granted 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, 81 L.Ed.2d 59, 65 (1984). In considering a motion to dismiss, the proper inquiry is not whether a plaintiff will ultimately prevail, but rather whether a plaintiff is permitted to offer evidence to support its claims. See Children’s Seashore House v. Waldman, 197 F.3d 654, 658 (3d Cir.1999), cert. denied, 530 U.S. 1275, 120 S.Ct. 2742, 147 L.Ed.2d 1006 (2000) (quoting Nami v. Fauver, 82 F.3d 63, 65 (3d Cir.1996)). The court may consider the allegations in the complaint, as well as any exhibits attached thereto. See Pension Benefit Guar. Corp. v. White Consol. Indus. Inc., 998 F.2d 1192, 1196 (3d Cir.1993). The defendant bears the burden of showing that plaintiffs have failed to state a claim for which relief can be granted. See Gould Elec. Inc. v. U.S., 220 F.3d 169, 178 (3d Cir.2000).
B. United Bank’s Motion to Dismiss
1. Count IV: Fraudulent misrepresentation
Under Pennsylvania law, the tort of intentional or fraudulent misrepresentation consists of the following elements:
(1) a false representation of an existing fact or nonprivileged failure to disclose,
(2) which is material to the transaction at hand,
*185 (3) made with knowledge of its falsity or recklessness as to whether it is true or false,
(4) with the intention of misleading another into relying on it;
(5) justifiable reliance on the misrepresentation; and
(6) a resulting injury proximately caused by the reliance.
Benevento v. Life USA Holding, Inc., 61 F.Supp.2d 407, 417 n. 3 (E.D.Pa.1999) (citing Gibbs v. Ernst, 538 Pa. 193, 207, 647 A.2d 882, 889 (1994) (citing Restatement (Second) of Torts § 525 (1977)); Huddleston v. Infertility Ctr. of Am., Inc., 700 A.2d 453, 461 (Pa.Super.1997); Wittekamp v. Gulf & Western, Inc., 991 F.2d 1137, 1142 (3d Cir.1993)) (emphasis added).
United Bank’s first attack on the fraud claim focuses on the requirement that there be a false representation of an existing fact. Oddly, United Bank concedes that the Hatfield defendants have pled “that the Bank did not intend to fulfill its arrangement with Monument to pay checks only on authorized signatures” (United Bank’s Mem. at 3) (emphasis added), yet insist on arguing that this allegation does not constitute actionable fraud. Pennsylvania law, however, recognizes that “a misrepresentation of fact, opinion, intention or law for the purpose of inducing another to act or refrain from acting in reliance thereon in a business transaction” constitutes actionable fraud. Neuman v. Corn Exch. Natl. Bank & Trust, 356 Pa. 442, 450, 51 A.2d 759, 763 (1947) (adopting Restatement of Torts § 525 (1939)) (emphasis added).
The Court observes, however, that, despite United Bank’s “concession,” the Hatfield defendants do not allege that United Bank misrepresented an intention not to perform. Rather, the cross-claim alleges that “United Bank fraudulently represented that checks ivould not be draum upon the Monument Financial account without two signatures, ... when, in fact, numerous checks were drawn upon the account with only one signature.” (Second Am. Ans. and Cross-cl. at 11252) (emphasis added.) This allegation actually forms a misrepresentation of an existing fact. While the Hatfield defendants need not prove their case at this stage, the theory they appear to bring forward is that in representing that checks would not be honored without the two required signatures, United Bank represented that procedures existed to prevent the drawing of such checks, when, in fact, adequate procedures did not exist. According to the argument, United
Alternatively, United Bank contends that the fraud claim does not plead facts with the particularity required by Federal Rule of Civil Procedure 9(b), as clarified by Rule 9(f). Rule 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 condition of mind of a person may be averred generally.” Fed.R.Civ.P. 9(b). United Bank argues that the cross-claim is deficient because it fails to allege facts specifying who made the statements, to whom the statements were made, or when they were made. In addition United Bank cites Rule 9(f), which provides, “For the purpose of testing the sufficiency of a pleading, averments of time and place are material____” Fed. R.Civ.P. 9(f).
A plain reading of Rule 9, however, would indicate that Rule 9(f) is not intended to append or qualify Rule 9(b), and that both sub-rules stand alone and have independent application. “Rule 9(f) does not require specificity in pleading time and place, but provides only that when specific allegations are made, they are material.” Borrell v. Weinstein Supply Corp., Civ.A. No. 94-2857, 1994 WL 530102, at *3 n. 4 (E.D.Pa. Sept. 27, 1994) (citing James Wm. Moore, Moore’s Federal Practice vol. 2, § 9.07[1], 9-41 (3d ed., LEXIS 2001)). “By ‘material,’ Rule 9(f) means such allegations are significant in that any difficulties with the allegations may cause immediate loss of a claim or defense. Thus, a date used by a claimant in pleading a claim for relief may trigger a dismissal if the statute of limitations is shown to have run.” Moore, Moore’s Federal Practice at vol. 2, § 9.07[1], 9-41 to 9-42. See also Hanna v. U.S. Veterans’ Admin. Hosp., 514 F.2d 1092, 1094 (3d Cir.1975); Clark v. Sears Roebuck & Co., 816 F.Supp. 1064, 1067 (E.D.Pa. Mar. 29, 1993) (citing Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure vol. 5A, § 1357, 352-354 (2d ed., West 1990)); Wright & Miller, Federal Practice and Procedure at vol. 5, § 1309, 696 (“It should be made perfectly clear that Rule 9(f) does not require the pleader to set out specific allegations of time and place; it merely states the significance of these allegations when they actually are interposed.”).
In assessing fraud claims under Rule 9(b), the Court of Appeals for the Third Circuit has held that plaintiffs need not plead the “date, place or time” of the fraud, so long as they use an “alternative means of injecting precision and some measure of substantiation into their allegations of fraud.” Rolo v. City Investing Co. Liquidating Trust, 155 F.3d 644, 659 (3d Cir.1998) (citing Seville Indus. Mach. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir.1984)). “[I]n applying Rule 9(b), focusing exclusively on its ‘particularity’ language is too narrow an approach and fails to take account of the general simplicity and flexibility contemplated by the rules.” Seville, 742 F.2d at 791 (citing Christidis v. First Pa. Mortg. Trust, 717 F.2d 96, 100 (3d Cir.1983)). Thus, while “it is certainly true that allegations of date, place or time fulfill these functions, nothing in the rule requires them.” Seville, 742 F.2d at 791. It is enough that the claim “plead[s] with particularity the ‘circumstances’ of the alleged fraud in order to place the defendants on notice of the precise misconduct with which they are charged.” Id. A claim satisfies the requirements of Rule 9(b) if it adequately delineates the acts and transactions constituting the fraud to apprise defendants fairly of the claim, and its allegations are sufficiently clear to enable defendants to answer. See Benevento v. LifeUSA Holding, Inc., 181 F.R.D. 298, 301 (E.D.Pa.1998) (citing Republic Envtl. Sys., (PA), Inc. v. Reichhold Chemicals, Inc., 154 F.R.D. 130, 131 (E.D.Pa. 1994); Denny v. Carey, 72 F.R.D. 574, 578-580 (E.D.Pa.1976)).
United Bank relies on two cases for the proposition that a pleading is inadequate unless it sets forth the time, place, and the content of the false representation; both are
no specific or satisfactory allegations of fraud appear in the complaint. Instead, plaintiffs make vague references to defendants’ “artifice,” “manipulation,” and “devices.” ... [0]ne can read [the] complaint from cover to cover ... and still have no idea what this “scheme” or “device” supposedly was, in what way it was fraudulent, and how defendants knew it was fraudulent.
Id. In the case at bar, the allegations of fraud against United Bank are more specific. The Hatfield defendants allege that “United Bank fraudulently represented that checks would not be drawn upon the Monument Financial account without two signatures, and/or failed to disclose that checks would be draw[n] upon the Monument Financial account, when, in fact, numerous checks were drawn upon the account with only one signature.” (Second Am. Ans. and Cross-cl. at ¶ 252.)
Second, United Bank turns to Seligson v. Plum Tree, Inc., 361 F.Supp. 748, 756 (E.D.Pa.1973), where the court determined that “the complaint must state the time, place, and content of the false misrepresentation.” To the extent that that decision required the time and place of the misrepresentation, it was overruled by Seville, 742 F.2d at 791. Regarding the “content” of the misrepresentation, the complaint at issue in Seligson failed to “specify the ... circumstances” of the alleged misrepresentations. Seligson, 361 F.Supp. at 756. The claim at issue here, while not a model of perfect pleading, “adequately describes the nature and subject of the alleged misrepresentation.” Seville, 742 F.2d at 791. The facts alleged are sufficient to place United Bank on notice of the precise misconduct with which they are charged, which is fraudulently misrepresenting that checks would only be honored upon two signatures, and this is the aim of the Rule 9(b) requirements. See id. Therefore, I conclude that the Hatfield defendants’ cross-claim of fraud is stated with sufficient particularity to survive a challenge under Rule 9 of the Federal Rules of Civil Procedure.
2. Count V: Conspiracy to Defraud
While United Bank’s motion moves to dismiss the conspiracy claim, the Bank’s memorandum of law wholly ignores this allegation. I will address the merits of the motion nevertheless. Under Pennsylvania law, a claim for civil conspiracy requires:
(1) a combination of two or more persons acting with a common purpose to do an unlawful act or to do a lawful act by unlawful means or for an unlawful purpose;
(2) an overt act done in pursuance of the common purpose; and
(3) actual legal damage.
Chantilly Farms, Inc. v. West Pikeland Twp., Civ. A. No. 00-3903, 2001 WL 290645, at *12, 2001 U.S. Dist. LEXIS 3328, at *41 (E.D.Pa. Mar. 23, 2001) (citing Smith v. Wagner, 403 Pa.Super. 316, 322-323, 588 A.2d 1308, 1311-12 (1991)) (emphasis added). First, United Bank appears to argue that the cross-claim fails to identify any false representations, which would be the “unlawful act” of a conspiracy to defraud. As detailed above, however, the cross-claim does identify a false representation, namely, that checks would not be drawn upon the account without the two authorized signatures. {See Second Am. Ans. and Cross-cl. at ¶¶ 252, 258.)
Alternatively, United Bank apparently contends that the conspiracy claim was not stated with the particularity required for a fraud claim under Federal Rule of Civil Procedure 9(b). Courts have determined that although it is true that the underlying fraud action must be pled with particularity under Rule 9(b), as discussed above, a plaintiff bringing a claim of conspiracy to defraud need only satisfy the notice pleading standards of Rule 8. See U.S. ex rel. Paul E. Atkinson v. Pa. Shipbuilding Co., Civ.A. No. 94-7316, 2000 WL 1207162, at *10, 2000 U.S. Dist. LEXIS 12081, at *37-40 (E.D.Pa. Aug. 24, 2000). “Therefore, to survive a motion to dismiss on the conspiracy claim, the plaintiffs complaint need only ‘describe the general composition of the conspiracy, some or all of its broad objectives, and defendant’s gen
The court in Atkinson, 2000 WL 1207162, at *10, n. 16, 2000 U.S. Dist. LEXIS 12081, at *40 n. 16 (citing, inter alia, Hayduk v. Lanna, 775 F.2d 441, 443 (1st Cir.1985); Klein v. Council of Chem. Assns., 587 F.Supp. 213, 226-27 (E.D.Pa.1984)), noted that other courts of appeal and district courts within this circuit have concluded that when a plaintiff alleges a conspiracy to defraud, and the “conspiracy alleged is directly linked to the fraud allegations,” the allegations must be pled with particularity pursuant to the requirements of Rule 9(b). In the case at bar, the conspiracy alleged is indeed directly linked to the fraud allegations. (See Second Am. Ans. and Cross-cl. at ¶ 259-265) (“United Bank conspired to defraud monies ... “United Bank’s conspiracy to intentionally, fraudulently, and improperly convert monies____”) Even so, the allegations of conspiracy here, which involve the interaction between United Bank, Burkat, and Keek, are such that the Hatfield defendants reasonably maintain that they cannot plead with any more specificity, because the facts underlying their claim are particularly within the defendant’s knowledge, at this point, and not their own. See Denny, 72 F.R.D. at 578; see also Rolo, 155 F.3d at 659 (citing Christidis, 717 F.2d at 99); Benevento, 181 F.R.D. at 301 (citing Saporito v. Combustion Engr., Inc., 843 F.2d 666, 675 (3d Cir.1988); Craftmatic Sec. Litig. v. Kraftsow, 890 F.2d 628, 645 (3d Cir.1984)) (“[C]ourts have relaxed Rule 9(b)’s particularity requirement when factual information is peculiarly within the defendant’s knowledge or control.”). Thus, I conclude that the Hatfield defendants’ cross-claim for conspiracy to defraud also survives this motion to dismiss.
C. Hatfield Defendants’ Motion to Dismiss
The Hatfield defendants filed a motion to dismiss the fraud claims brought by United Bank, contending that it does not plead facts with the particularity required by Federal Rule of Civil Procedure 9(b). United Bank responded by filing an amended cross-claim, thereby mooting the motion to dismiss. In the amended cross-claim, United Bank clearly pleads the elements of fraudulent misrepresentation. See Benevento, 61 F.Supp.2d at 417 n. 3 (elements listed earlier in this memorandum). Specifically, the Bank now alleges, inter alia, that Hatfield represented to United Bank “on or about February 12, 1999 that Eric Kack was his partner, and was authorized to issue Monument funds on his signature alone” (United Bank’s Am. Cross-cl. at ¶ 3(b)(4)) and that this representation was material to United Bank disbursing the funds. (See id. ¶ 4(a)). The representation was “knowingly false” (id. at ¶ 3(b)(4)), was made with the intention of misleading United Bank into relying on it (see id. at ¶ 3(b)), and United Bank justifiably did rely on it (see id.) to its detriment. (See id. at ¶ 3, 3(c), 4). Additionally, United Bank has pled the dates that are significant to its claim, and has characterized the circumstances of the alleged representation sufficiently to enable the Hatfield defendants to answer. I therefore conclude that United Bank has adequately pled a cause of action for fraudulent misrepresentation with sufficient particularity to survive a challenge under Rule 9 of the Federal Rules of Civil Procedure.
III. CONCLUSION
In sum, defendant United Bank has failed to satisfy its burden in demonstrating that the cross-claims for fraudulent misrepresentation and conspiracy to defraud brought by the Hatfield defendants should be dismissed under Federal Rule of Civil Procedure 12(b)(6). I also conclude that the Hatfield defendants’ challenge to United Bank’s cross-claims of fraudulent misrepresentation has been adequately addressed by United Bank’s amended cross-claims and is therefore moot.
An appropriate order follows.
ORDER
AND NOW, this 6th day of July, 2001, upon consideration of the motion of defen
1. The motion of United Bank is DENIED, and;
2. The motion of Monument Financial Services Group, Inc., Hatfield Financial Group, Inc., Hatfield Capital Management, Inc., and Ronald V. Hatfield is DENIED.
IT IS FURTHER ORDERED that defendants United Bank, Monument Financial Services Group, Inc., Hatfield Financial Group, Inc., Hatfield Capital Management, Inc., and Ronald V. Hatfield shall answer the respective amended cross-claims no later than July 26, 2001.
. This Court has original jurisdiction pursuant to 28 U.S.C. § 1331 because this action arose under federal law, specifically, federal securities law. This Court has supplemental jurisdiction over the remaining state claims pursuant to 28 U.S.C. § 1367.
. In actuality, this was the Hatfield defendants' third amended answer. Because this document is referred to by the parties and the docket as the "Second Amended Answer and Cross-Claim,” for clarity's sake, it will be cited as such in this memorandum.
. Keck sometimes used the alias of "Eric Kack.”
. According to United Bank, "Monument Financial was not an entity” (United Baltic's Ans. at ¶ 55), did not "exist[] as a corporation” (United Bank's Am. Cross-cl. at ¶ 3(b)(1)), or “was [not] a legitimate business enterprise.” (Id. at ¶ 3(b)(4)).
. This date was taken from plaintiffs' Ex. H to the complaint, which is entitled "Business New Account Worksheet." The complaint itself, at ¶ 54, gives the date as January 11, 1999, which was admitted by United Bank. (Ans. at ¶ 54). United Bank's amended cross-claim at 113(b)(1), (2) presents the date as "on or about January 26 or 27, 1999.”
. Keck used the alias of "Kack” for the purposes of this account.
. See Restatement (Second) of Torts § 525 cmt. c (1977) ("A representation of the state of mind of the maker or of a third person is a misrepresentation if the state of mind in question is otherwise than as represented. Thus, a statement that a particular person, whether the maker of the statement or a third person, is of a particular opinion or has a particular intention is a misrepresentation if the person in question does not hold the opinion or have the intention asserted.”); see also id. at cmt. d (distinguishing expressions of fact, including intention, from those merely of opinion, in reference to what constitutes justifiable reliance).
. Thus, United Bank’s citation of Huddleston, 700 A.2d at 461, and Krause v. Great Lakes Holdings, Inc., 387 Pa.Super. 56, 67, 563 A.2d 1182, 1187 (1989), for the proposition that the breach of a promise to do something in the future does not constitute fraud, is irrelevant here, where the object of the fraud is present intention, not future performance.
