Maltz v. Union Carbide Chemicals & Plastics Co.Maltz v. Union Carbide Chemicals & Plastics Co.
ORDER
In a Report and Recommendation dated May 20, 1997 (the “Report”), Magistrate Judge Theodore H. Katz recommended that defendants’ motion to dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) be granted in part and denied in part. Defendants (other than Michael Neary) have filed timely objection to the Report. These defendants object to the recommendation of the Report that defendants’ motion to dismiss be denied as to: (1) plaintiffs, fraud claims against all the individual defendants except Richard W. Broockman and David M. Jones, (2) plaintiffs’ negligent misrepresentation claims against all the individual defendants except Broockman and Jones, (3) plaintiffs’ civil conspiracy claims, and (4) plaintiffs’ tortious inference with contract claims against defendants R.D. Kennedy and Ralph Lutjen. Plaintiffs have filed a timely response to these objections.
Pursuant to Federal Rule of Civil Procedure 72(b) and 28 U.S.C. § 636(b), I have reviewed de novo those aspects of the Report to which defendants object. I find that defendants’ objections are adequately addressed by the Report. I hereby accept and adopt the Report, attached hereto, in its entirety. For the reasons stated in the Report, I grant defendants’ motion to dismiss in part and deny it in part. Specifically, I:(l) dismiss plaintiffs’' state statutory claims brought pursuant to the Texas Deceptive Trade Practices Act, the Connecticut Unfair Trade Practices Act, and the California Franchise Investment Law; (2) dismiss all claims against defendant Union Carbide Corporation (“UCC”); (3) dismiss all claims for tortious interference with prospective business relations; (4) limit the remedy for breach of warranty claims against defendants Union Carbide Marble Care (“UCMC”) and Union Carbide Chemicals and Plastics Company, Inc. (“UCC&P”) to the replacement or purchase price of the warrantied goods. Defendants’ motion to dismiss is denied in all other respects.
SO ORDERED.
REPORT AND RECOMMENDATION
This action was referred to me pursuant to your Order of Reference, for general pretrial supervision and the resolution of dispositive motions requiring a Report and Recommendation. Plaintiffs are five individuals and the five corporate franchises in which they hold stock and which were formed pursuant to agreements entered into with defendant Un
BACKGROUND
Between May, 1990 and August, 1991, each of the individual plaintiffs entered into franchise agreements with UCMC. (Plaintiffs Amended Complaint, dated August 14, 1996 (“Am.Compl.”), at ¶¶ 36, 44, 51, 57, 68.) In essence, in exchange for certain payments, the agreements granted each of the franchisees the right to operate one “Marblelife” business in a specifically defined territory.
The Amended complaint sets forth in detail the background of the Marblelife enterprise, but a short synopsis will suffice for present purposes. In the late 1980s, UCC implemented the “Intrepeneurship” program, designed to foster new business ventures within Union Carbide. (Am.Compl. at ¶ 19.) As part of this program, UCC&P undertook an effort to exploit the market for marble care chemicals by providing a marble care service offering uniform chemicals, techniques and results. (Am.Compl. at ¶¶ 19-21.) The project was spearheaded by defendant Richard Brooekman (“Brooekman”), who later became President of UCMC, and a team from UCC&P, who set about developing a business plan for the implementation of a nationwide franchise system of marble care specialists. (Id. at ¶¶ 205-25.) In an effort to gain knowledge and experience in the marble care industry, UCC&P acquired an existing marble care company, which then became its subsidiary, UCMC. (Id. at ¶¶ 23, 28.) The new venture was coined “Marblelife.” (Id. at ¶ 29.)
As a result of advertisements and other solicitations placed by UCMC, each of the individual plaintiffs inquired about, and eventually acquired, a Marblelife franchise. (See Id. at ¶¶ 31, 38, 46, 54, 63.) The individual plaintiffs allege that’prior to entering into the ‘ franchise agreements, defendants Brooekman and David M. Jones (“Jones”), Vice President of UCMC, made material misrepresentations about the Marblelife system, the chemicals used in the system and the right under the franchise agreement to use by the franchisees of the Union Carbide name and trademark, (Id. at ¶¶ 34, 40, 48, 55, 66), all of which they allege induced them into entering into the agreements. Plaintiffs further allege that they were induced to continue making purchases of chemicals and equipment under their franchise agreements because they were repeatedly, and falsely, assured by Brooekman and defendant Reed Freeman (“Freeman”) that UCC&P was not seeking a buyer for UCMC. (Id. at ¶¶ 70-73.)
On October 27, 1995, plaintiffs commenced this action by filing two lawsuits in the Texas state courts, each of which was against some of the defendants named in the Amended Complaint. Those actions were removed by the defendants to the United States District Court for the Southern District of Texas (Houston Division) based on diversity jurisdiction. That court denied the plaintiffs’ motion to remand the cases to state court and the motion of the defendants to dismiss based on the forum selection clause in the franchise agreements.
(See
Consolidation and Transfer Order, dated April. 1, 1996.) The court then transferred the two actions to
DISCUSSION
I. Motion ■ to Dismiss Under Rule 12(b)(6)
In deciding a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must construe the allegations of the complaint in the plaintiffs favor.
Scheuer v. Rhodes,
■Among the items that may be considered on a motion to dismiss are documents incorporated into the complaint by reference, documents attached to the complaint as exhibits, information that can be judicially noticed, or “‘documents either in plaintiffs’ possession or of which plaintiffs had knowledge and relied on in bringing suit.’”
Culver,
II. Choice of Law
As a threshold matter, this Court, sitting in diversity, must determine what state’s substantive law is to be applied to plaintiffs’ claims. Plaintiffs argue that Texas law applies to all of the claims. Defendants argue that New York law applies to all of the claims. It is my conclusion that New York law applies to the breach of contract claims and that the tort claims, as categorized below, are governed by Texas, Ohio and California law. 4
Generally, in diversity cases, a federal court applies the substantive law of the state in which the court sits, including that state’s choice of law rules.
See, e.g., Klaxon Co. v. Stentor Elec. Mfg. Co.,
Here, the transfer order of the Texas District Court does not cite either § 1404(a) or § 1406(a) in support of the transfer. However, the order unambiguously states that the transfer was made “pursuant to' the franchise agreements’ forum selection clause.”
5
Transfers made pursuant to forum
The Franchise Agreement contains a New York choice of law provision and plaintiffs allege claims sounding in both contract and in tort. Therefore, the first step in resolving what substantive law is to be applied is to determine both the validity and the scope of the choice , of law provision under Texas choice of law principles. That is, in order to discern the proper law to apply, the Court must first determine whether Texas would honor the parties’ choice of New York law as set forth in the Franchise Agreement, and if Texas would interpret that provision in the Agreement as governing the tort as well as the contract claims. I find that Texas would enforce the choice of law clause and that, therefore, New York law governs all of plaintiffs’ contract claims. However, particularly in light of the narrow language contained in the choice of New York law clause, I find that Texas would construe that clause as governing only plaintiffs’ contract claims and not the tort claims. Therefore, with respect to plaintiffs’ tort claims, Texas choice of law analysis governing tort claims will be applied.
As a means of protecting the justified expectations of the parties, Texas choice of law principles generally give effect to choice of law clauses in contracts.
Salazar v. Coastal Corp.,
Here, the parties not only could have resolved through express provisions the issues now being litigated — the rights and duties of the parties under the contract and
Plaintiffs do not argue that a fundamental public policy of another state would be violated by enforcement of the choice of law provision. Rather, .they contend that Texas would not honor the choice of law clause in the Franchise Agreement because New York lacks a reasonable relationship to either the parties or the Franchise Agreements. I disagree. As defendants point out, UCMC, one of the parties to all of the Franchise Agreements, operates a training facility in Tarrytown, New York for franchisees, and additionally, it has a number of franchises in New York. (Def. Reply Mem. at 5.) Moreover, two of those franchisees were employed by UCMC as management consultants. (Id.) Finally, plaintiff Jerry Maltz (“Maltz”) claims that he twice met with UCMC employees in New York and that the misrepresentations at issue in this action were made to him during one of those meetings (Am.Compl. at ¶ 35), and plaintiff Nick Began (“Began”) claims he met with UCMC employees in New York prior to signing his agreement. (Am.Compl. at ¶ 57.) At that meeting, representatives of UCMC purported to arrange a demonstration of the Marblelife system. In fact, according to the Amended Complaint, Began was misled by UCMC at that meeting, since the system employed during the demonstration was not the Marblelife system.
Plaintiffs do not dispute these contacts between New York and the parties to the Franchise Agreements, some of which touch on the very subject matter of the Amended Complaint. Rather, they argue that Texas courts will only find a reasonable relationship where the state whose law was chosen by the parties is the principle place of business of at least one of the parties. (PI. Br. at 6-8.) However, a fair reading of the cases cited by plaintiffs does not support this proposition. While Texas courts will find a reasonable relationship where one of the parties has its principle place of business in the chosen state, none of the cases suggest that this is a prerequisite for honoring a choice of law clause.
7
See Salazar,
Under Texas law, however, the choice of law clause in the agreements governs only the contract claims and not plaintiffs’ tort claims. Texas courts look to the language of a choice of law clause to determine its scope, and unless that language indicates that the parties intend its scope to be broader than claims sounding in contract, it will be deemed to govern only contract claims.
See Busse v. Pacific Cattle Feeding Fund
#
1, Ltd.,
The choice of law clause in the Franchise Agreement states, in pertinent part, that the “Agreement is to be construed in accordance with the law of the State of New York without recourse to New York choice of law or conflicts of law principles.” (Franchise Agreement at ¶ 29.01) (emphasis added). Applying the principles in the cases cited above, it is clear that this language does not encompass the tort claims in the Amended Complaint. Therefore, Texas choice of law principles must be applied to determine the substantive law governing those claims. 8
Where, as here, the parties have not agreed to the application of a particular state’s law with respect to their tort causes of action, Texas will scrutinize the contacts between the parties and the occurrences that are material to the parties’ dispute to determine which state has “the most significant relationship to the particular substantive issue,” and will apply the law of that state to resolve that issue.
Duncan v. Cessna Aircraft Co.,
Applying these factors to the tort claims at issue, it is clear that the law of a single state cannot be applied to all the claims, as suggested by the parties. Moreover, factors one and three tip the scales decidedly in favor of applying Texas law to the claims of Maltz and his franchise Marble-care of Houston, applying Ohio law to the claims of Began and his franchise Stone-works, Ltd., Inc., and applying California law to the claims of the remaining individual plaintiffs and their franchises, Doug Selik (“Selik”) and Marblelife of San Diego, Lynch and Marblelife of South Orange Co. and Joseph Hackett (“Hackett”) and Marblelife of Palm Springs.
With respect to the first factor, the injuries purportedly suffered by the plaintiffs were sustained at the location of their respective franchises, which in all cases is the same state as that in which they reside. Thus, Maltz, who is domiciled in Texas, also suffered his injuries in the state of Texas, where his franchise is located. Likewise, Began, who is a resident of Ohio, suffered his injuries in the state of Ohio, where his franchise is located. Selik, Lynch and Hackett, all of whom are residents of California, the same state as the situs of their franchises, suffered their injuries in California. Moreover, due to its contractual relationships with the plaintiffs and its duties under the Fran
Thus, Texas choice of law principles dictate that New York law will be applied to the contractual claims in accordance with the choice of law provision in the Franchise Agreements. Texas law will be applied to the tort claims of Maltz, Ohio law will be applied to the tort claims of Began, and California law will be applied to the tort claims of Selik, Lynch and Hackett, as these states have the most significant relationships to those parties and their tort claims.
III. Liability for Breach of Contract and Breach of Warranty
Plaintiffs allege that their Franchise Agreements were breached when UCMC failed to deliver the products and services it had agreed to deliver under the Agreements, and when the UCMC Marblelife system was eventually sold to a financially unsound buyer, who was unable to perform the terms of their contracts with UCMC. (Hearing Tr. at 4-5; see also Am.Compl. at ¶¶ 101-02.) 10 Plaintiffs also allege breach of both implied and express warranties, contending that defendants falsely represented that the chemicals used in the Marblelife system were safe and appropriate for use in cleaning marble surfaces. (Am.Compl. at ¶¶ 103-104.) Defendants seek to dismiss the breach of contract and breach of warranty claims as to UCC and UCC&P only, and additionally seek to limit any remedy that plaintiffs may recover against UCMC for breach of warranty to that provided for under the contract.
For the reasons that follow, I find that plaintiffs have sufficiently pleaded an alter ego theory of liability so as to hold UCC&P liable for UCMC’s breaches of contract, but that the Amended complaint fails to state a claim under this theory against UCC. I further find that any recovery against UCMC or UCC&P for breach of warranty for defects in the chemicals or other goods supplied pursuant to the Purchase and Franchise Agreements is limited to the exclusive remedy agreed to by the parties, as embodied in those documents.
A. Liability of UCC & UCC&P for UCMC’s Breaches
Plaintiffs seek to “pierce the corporate veil” to hold UCC and UCC&P (the corpo
As an initial matter, I nóte that the allegations in the Amended Complaint are painted in extremely broad-brush strokes. Throughout, the word “defendants” is used indiscriminately, with no attempt made to identify the particular defendant to which a specific allegation refers, or, in some oases, to link particular defendants with the acts alleged. With respect to the individual defendants, potential liability for any given cause of action may be evident, because they are alleged to have performed at least some specific acts. However, with respect to corporate defendants UCC and UCC&P, although the Amended Complaint broadly asserts “alter ego” as the basis of liability against them, it is not at all clear for which specific claims pláintiffs seek to assert such liability. For instance, although plaintiffs use the word “defendants” in the breach of warranty section of the Amended Complaint, indicating that they seek to hold all defendants hable for that claim, inexplicably, they appear to limit the breach of contact claim to UCMC and UCC&P, while at the same time alleging alter ego liability against UCC. Under the circumstances, I construe the Amended Complaint to assert alter ego liability against UCC and UCC&P for UCMC’s breaches of contract, including breaches of the warranty provisions of the Franchise Agreements. Neither UCC nor UCC&P is a party to the Franchise Agreements and they therefore could not be held liable for breaches in the absence of alter ego liability. 13
Generally, parent and subsidiary corporations are treated as separate legal entities, and a contract by one does not legally bind the other.
See Carte Blanche (Singapore), Pte, Ltd. v. Diners Club Int’l, 2
F.3d 24, 26 (2d Cir.1993);
Gmerek v. Scrivner, Inc., 221
A.D.2d 991, 992,
Courts in this state, and federal courts construing New York law, have identified certain factors relevant to determining whether a parent controls a subsidiary corporation to a sufficient degree to be considered its “alter ego.” Among those factors are (1) the absence of formalities of corporate existence on the part of the subsidiary; (2) an overlap in ownership, officers, directors and personnel between the two corporations; and (3) the amount of business discretion displayed by the subsidiary.
Carte Blanche, 2
F.3d at 26 (citing
Wm. Passalacqua Builders, Inc. v. Resnick Developers S., Inc.,
Even accepting as true all of the factual allegations in the Amended Complaint, which I must for purposes of this motion, plaintiffs have failed to satisfy the first part of the
Morris
two-part test with respect to UCC. The Amended Complaint baldly asserts, in a single four-line paragraph, that “UCMC is but the alter ego of UCC&P and UCC, acting solely as a conduit for the performance of [their] business, and resulting in actual fraud.” (Am.Compl. at ¶ 110.) While plaintiffs have stated the correct legal standard for determining alter ego liability under New York law, they fail to allege any facts which, if true, would indicate that UCC exercised any control over UCMC, much less a degree of control in its ongoing relationship with the franchisees as to render UCMC a mere shell or dummy corporation, operating at the behest of and solely for the benefit of UCC, so as to justify piercing the corporate veil to hold UCC liable for UCMC’s breaches of contract.
See, e.g., Zi
Plaintiffs, in their brief in opposition, do not even attempt to point to factual allegations in the body of the Amended Complaint that would support their theory of liability against UCC applying these criteria. Indeed, read in the most generous light, as to UCC, the allegations merely establish that certain of the individual defendants who became officers, directors and employees of UCMC were at one time employees of UCC, that UCC may have taken steps to exploit the market for their chemicals by encouraging the establishment of ventures that would involve the sale of such chemicals, and that UCC held a controlling interest in UCC&P, the company that would eventually establish UCMC. Indeed, there is no allegation that any individual from UCC was in any way involved in the formation and operation of UCMC. Plaintiffs do not even allege that the individual defendants were employees, officers or directors of UCC at the same time they were employed by UCMC, and even if they had, such an allegation, by itself, would not suffice for purposes of pleading alter ego liability.
See American Protein Corp. v. AB Volvo,
Rather than making particularized allegations, plaintiffs attempt to meet their pleading burden by pointing to numerous documents attached to the Amended Complaint. However, none of those documents suggest control and domination of UCMC by UCC. Indeed, the only thing that the documents suggest that UCC and UCMC shared was the “Union Carbide” name affiliation. 14 Moreover, there is barely a mention in the documents of any officer or director of UCC, and simply no indication that UCC was acting in a way that would indicate domination and control by UCC of UCMC. Taken as a whole, the documents evidence nothing more than the establishment, by UCC&P, of a subsidiary that was expected to exploit the market for chemicals, presumably to the ultimate advantage of UCC and UCC&P, and that the subsidiary company was staffed with former employees of UCC and UCC&P. Plaintiffs do not contend, nor could they, that the mere establishment of a subsidiary, for the purpose of financial gain, in and of itself establishes “control” or “domination” on the part of the parent or grandparent. In short, despite their volume, none of the documents attached to the Amended Complaint support plaintiffs’ assertion that UCC dominated and controlled UCMC. 15
As previously noted, in order to pierce the corporate veil, plaintiffs need not show UCC&P’s complete domination of UCMC as to every detаil of the existence of UCMC, but rather, need only allege complete domination and control with respect to the specific transaction attacked. Here, one of the “transactions attacked,” and one of the bases for the breach of contract claims, is the sale of UCMC to an unfit purchaser, in derogation of a specific contractual term. Plaintiffs sufficiently allege that UCC&P completely dominated UCMC with respect to this particular transaction. They claim that UCC&P actually made the decision to sell UCMC to Ed Williams, an allegation that is not contested by defendants, and indeed one that is supported by a number of the exhibits attached to the Amended Complaint. See Am. Compl. at Exs. 31, 34, 37, 41. The allegation that UCC&P is a 92% shareholder of UCMC, again, a factual allegation that is not contested by defendants, further supports the conclusion that the decision to sell the company, and the decision to sell the company to a particular buyer, was made by UCC&P and not by UCMC. Moreover, plaintiffs claim that the decision to sell was hasty and ill-advised, thus supporting the inference that UCC&P failed to adequately investigate the potential purchaser, resulting in a “wrong” to plaintiffs when the contract was breached upon completion of the sale. Additionally, there is some support for the inference of an ongoing involvement by UCC&P in UCMC’s business, or a financial connection between the two companies, that might go beyond that of the normal parent/subsidiary relationship. (See Am.Compl.Ex. 21 discussing the fact that “UCC&P pays and charges” UCMC for the salaries of six UCMC employees and discussing UCC&P’s restructuring of UCMC’s operations).
Without knowing more, I simply cannot disregard this indicia of possible control arid domination. Therefore, although pretrial discovery may prove plaintiffs alter ego theory to be without merit, 16 I find that the allegations of alter ego with respect to UCC&P are sufficient to withstand a motion to dismiss.
B. Remedies for Breach of Warranty
The purchase agreement entered into between the plaintiff franchisees and UCMC contains an express warranty that the marble cleaning chemicals “meet[] Seller’s specification for Material or such other specifications as have been expressly made part hereof .” (Standard Terms for Purchase of Products, Equipment and Services from Franchisor, attached to Affidavit of Daniel Gildin as Exhibit C (“Purchase Agreement”), at ¶ 8.) The clausе then goes on to disclaim all other express or implied warranties, including but not limited to “all implied warranties of merchantability and fitness for a particular purpose.” (Id.)
17
Defendants seek dismissal of
It is well-settled -that under New York law, parties to a contract may exclude or modify implied warranties so long as the warranty disclaimer is conspicuous and specific. N.Y.U.C.C. § 2-316(2) (McKinney 1993); see,
e.g., Grupo Sistemas Integrales de Telecomunicacion S.A de C.V. v. AT&T Communications, Inc.,
No. 92 Civ. 7862(KMW),
Similarly, parties to a contract may limit the remedies for its breach, and the statute allowing such limitations specifically anticipates the limitation agreed to by UCMC and the individual plaintiffs in this, case — the price of the goods or replacement of the goods. N.Y.U.C.C. § 2-719(a) (McKinney 1993). Such limitations clauses are enforced unless the specified remedy “fail[s] of its essential purpose.” N.Y.U.C.C. § 2-719(2);
Scott v. Palermo,
Generally, whether changed circumstances have caused a limited remedy to fail of its essential purpose is a question of fact and not of law.
Piper Acceptance Corp. v. Barton,
No. 83 Civ. 4998(CSH),
IV. The Fraud & Negligent Misrepresentation Claims
Plaintiffs lodge numerous allegations of fraud and negligent misrepresentation in connection with the Marblelife enterprise. I find that these claims are sufficient to survive this motion to dismiss, with the exception of those against UCC, which I find to be insufficient as a matter of law. Indeed, although the Amended Complaint is neither specific nor clear as to which defendants plaintiffs seek to hold liable for any or all of the tort claims, any tort claim against UCC must fail as a matter of law. It is black-letter law that a corporation can only act through its officers, directors and employees. The Amended Complaint does not allege that any of the individual defendants were employed by and acting on behalf of UCC at the time they purportedly committed the tortious acts. 19 Moreover, the Amended Complaint does not allege that any non-defendant UCC officer or director committed a tort. Therefore, UCC is not a proper defendant as to the tort claims. What follows is a discussion of the fraud and negligent misrepresentation claims as they relate to the remаining defendants.
A. Fraud
Plaintiffs’ fraud claims generally fall into two categories — allegations that defendants made affirmative misstatements to them and allegations that defendants omitted to disclose material facts to them. Because many of the causes of action in the Amended Complaint hinge on these purported misstatements and omissions, it may be helpful to set them forth in some detail.
Most of the purported misrepresentations occurred before the plaintiffs entered into their agreements, and plaintiffs contend that the misrepresentations were meant to induce them to enter into those agreements. Plaintiffs claim that misstatements were made to them about the Marblelife system itself— that it was unique in that it offered specialized support staff, proprietary chemicals that were safe to. use under normal conditions, and that it had numerous competitive advantages that would assure its growth. (Am. Compl. at ¶¶34(1), 34(2), 34(7)). Also at issue are purported misrepresentations made about the computer software and the use of the Union Carbide name and trademarks by the franchisees. (Am.Compl. at ¶¶ 34(3), 34(6).) Plaintiffs also allege that they were falsely assured that there had been a dramatic increase in the use of marble in the United States (Am.Compl. at ¶ 34(4)), and that neither UCMC nor any person listed in the offering circular for Marblelife was a defendant in any pending litigation, when in fact UCMC and others were defendants in a lawsuit based on fraudulent conduct in connection with the sale of Marblelife franchises. (Am.Compl. at ¶ 34(5)). Finally, plaintiffs allege that they were falsely informed, sometime after they had.signed their agreements and established their franchises, that there were no plans to sell UCMC and that, relying on these assurances, they continued to purchase supplies, chemicals and equipment under the terms of the Agreements. (Am. Compl. at ¶¶ 74 & 75.) Alternatively, plaintiffs appear to allege that defendants were negligent in making these misrepresentations. (Am.Compl. at ¶ 117.)
Plaintiffs also contend that material information was deliberately withheld from them, including the details of UCC&P’s business plan for UCMC, which provided for limited
The elements of a claim of fraud in California, Ohio and Texas are essentially the'same. In order to state a claim for fraud in these three states, a complaint must plead (1) that defendant made a misrepresentation; (2) with knowledge that the representation was false; (3) with the intent to induce reliance on the misrepresentation by the plaintiff; (4) that the plaintiff reasonably or justifiably relied on the misrepresentation; and (5) that the plaintiffs reliance resulted in damages to him.
Lazar v. Superior Court of Los Angeles,
Although I am unable to conclude as a matter of law that plaintiffs’ rehanee on all of defendants’ purported misrepresentations was unreasonable, portions of this issue may be capable of resolution on a motion for summary judgment, after the factual record has been more fully developed. 22 Indeed, my decision sustaining the adequacy of the fraud pleadings at this juncture of the litigation is not intended to indicate that I necessarily view ah of the alleged fraud claims as viable or sustainable under the laws of California, Ohio and Texas. For example, defendants challenge the viability of a fraud claim arising out of a number of specific misrepresentations, arguing that they are either barred by explicit contradictory contract terms, or that they are dupheative of the breach of contract claims, or are not actionable as a matter of law because the statements were predictions of future performance. While there may be some merit to these challenges to particular purported misrepresentations, 23 I decline to address them at this stage of the proceedings. Defendants’ arguments are premised on the appheation of New York law, and not the state laws that I have found to be apphcable. Moreover, it is not clear that the particular language of the Franchise Agreement would, as a matter of law, render any rehanee on the purported misrepresentations unreasonable. Therefore, the elimination of any particular misrepresentations from the larger fraud claim would, in the Court’s view, be more appropriately addressed after discovery has been completed and the issues have been properly briefed under the appropriate states’ laws, in a motion for summary judgment.
B. Negligent Misrepresentation
As an alternative to their theory that certain UCMC and UCC&P employees made intentional, fraudulent misrepresentations, plaintiffs allege that these same statements were neghgently made.
24
Plaintiffs’ allega
In California, to state a cause of action for negligent misrepresentation, plaintiff must plead (1) that defendant made a misrepresentation of a past or existing material fact; (2) that defendant had no reasonable ground for believing the statement to be true; (3) that defendant intended to induce plaintiff’s reliance on the misrepresentation; (4) that plaintiff was ignorant of the true facts and justifiably relied on the misrepresentation; and (5) that plaintiff was damaged as a result.
Lincoln Alameda Creek v. Cooper Indus., Inc.,
Ohio and Texas follow the approach laid out in the Restatement (Second) of Torts requiring allegations that (1) defendant, during the course of his business, profession or employment or during the course of a transaction in which he had a pecuniary interest, supplies false information to plaintiff for his guidance in his business; (2) defendant fails to exercise reasonable care in obtaining or communicating that information; (3) plaintiff justifiably relies on that false information; and (4) plaintiff suffers damage as a result of such reliance.
Delman v. City of Cleveland Heights,
Although some cases suggest that the “during the course of his business” language of the first element requires that the defendant be in the business of supplying information, such as an accountant or a lawyer,
see, e.g., Geosearch, Inc. v. Howell Petroleum Corp.,
Defendants, relying solely on New York law, аssert that the allegations in the Amended Complaint fail to state a claim of negligent misrepresentation because plaintiffs have not alleged “some special relationship between the parties.” (Def.Br. at 60.)
25
What specific type of relationship is required under New York law and whether plaintiffs have alleged such a relationship are matters I need not decide, since New York law is inapplicable to the tort claims. Clearly, California does not require this additional element.
See Lacher v. Southwest Diversified, Inc.,
To sum up, for purposes of this motion to dismiss, the Amended Complaint adequately pleads claims of fraud and, in the alternative, negligent misrepresentation, against all of the defendants except UCC. Since none of UCC’s officers, directors, employees or agents are alleged to have made or participated in any fraudulent or negligent misrepresentations, the claims against UCC should be dismissed.
V. The Civil Conspiracy Claims
The crux of plaintiffs’ civil -conspiracy claims, which are apparently brought against all of the defendants, is that the defendants, with the knowledge that the Marblelife system was “wholly unreliable, unprofitable, and inadequate to perform a quality job cleaning marble and other stone surfaces,” conspired to fraudulently induce them into purchasing the franchises and the products. (Am.Compl. at ¶¶ 106-107). The substantive allegation is as follows:
Defendants conspired to defraud Plaintiffs into purchasing franchises and their products. Defendants jointly and on separate occasions acted in concert to intentionally misrepresent vital facts to Plaintiffs. Such distortions were made consciously and in an effort to induce Plaintiffs and other unsuspecting individuals into believing that they were purchasing viable franchises and products that would evolve into profitable businesses. As a result of Defendants’ actions, Plaintiffs have been injured in an amount within the jurisdictional limits of this Court.
(Id. at ¶ 107.) Defendants moved to dismiss this claim based on their conclusion that New York does not recognize a tort sounding in civil conspiracy. (Def.Br. at 52.) Of course, I need not address the validity of that argument, since New York law does not apply to the civil conspiracy claims.
California, Ohio and Texas all recognize the common-law tort of civil conspiracy, and the prerequisites for a cause of action in all three states are essentially the same. Such a claim must allege (1) the formation and operation of the conspiracy between two or more persons; (2) the wrongful acts that were done pursuant to the conspiracy; and (3) the damage resulting from such act or acts.
Munday v. Real Estate Advisors, Inc.,
No. C-95-20143,
As the second element of the cause of action suggests, civil conspiracy is not itself an actionable wrong, and must be supported by sufficient allegations that an independent tort or wrong was committed pursuant to the conspiracy.
See, e.g., General Am. Life Ins. Co. v. Rana,
Under the pleading standards of Rule 8(a) of the Federal Rules of Civil Procedure, at a minimum, a complaint sounding in conspiracy must either expressly allege an agreement on the part of the co-conspirators or put forth sufficient facts from which a trier of fact can infer that such an agreement was made.
See, e.g., Hecht,
Defendants do not argue that the conspiracy claims are deficient because plaintiff has failed to plead the requisite elements. Moreover, having concluded that the Amended Complaint contains sufficient allegations to implicate UCMC and UCC&P employees and officers in what can be viewed as closely connected fraudulent statements or omissions, with a common goal, an agreement can be reasonably inferred. The Court would note, however, that the allegations of conspiracy are extremely broad and vague. While facts alleged in the Amended Complaint
VI. The Tortious Interference Claims
Plaintiffs bring claims on the related theories of tortious interference with contract and tortious interference with prospective business relations, First, they assert that “UCC&P, UCC and its employees” (the “Non-Franchisor Defendants”) tortiously interfered with the contract between UCMC and the plaintiffs:
in that, among other things, they decided to sell the company and strip the venture. Defendants induced Plaintiffs into purchasing the franchises by indicating that purchasers could have use of the recognized “Union Carbide” trademarks and service marks. Defendants are liable for tortious interference with a contract as they interfered with Plaintiffs contract with UCMC by inducing or otherwise causing them not to perform on the contract and/or by making Plaintiffs performance on .the contract more .burdensome, 'difficult or impossible, or of less or no value to the Plaintiffs even if he tried to perform upon it.
(Am.Compl. at ¶ 107.) The claims of tortious interference with prospective business relations, which again are limited to the'Non-Franchisor Defendants, allege interference with plaintiffs’ prospective business relations with both UCMC and unnamed “prospective customers.” (Am.Compl. at ¶¶ 108-109.) Plaintiffs aver that the Non-Franchisor Defendants wrongfully interfered with their future business relations with UCMC
by selling,UCMC to [an] ill-equipped [buyer] and strfpping the venture. Defendants induced Plaintiffs into purchasing the franchises by indicating that purchasers could have use of the recognized “Union Carbide” trademarks and service marks.
Defendants have tortiously interfered with the prospective business relations between the Plaintiffs and: prospective customers. Even Defendants realized the value of the “Unión Carbide” name in the seeking of major national accounts. Plaintiffs gained credibility in having the backing of UCC and UCC&P when seeking new customers.
(Am.Compl. at ¶ 109.)
Defendants move to dismiss all of the tortious interference claims on various grounds premised on the applicability of New York law. However, under the applicable laws of California, Ohio and Texas, and construing the allegations in the Amended Complaint in favor of plaintiffs, I find that plaintiffs have stated a claim for tortious interference with contractual rеlations against UCC&P and the individual defendants Lutjen and Kennedy. 28 The allegation of tortious interference with business relations, however, fails to state a claim and should be dismissed.
The torts of interference with contractual relations and interference with prospective economic advantage both protect the parties’ interest in stable economic relationships.
Pacific Gas and Elec. Co. v. Bear Stearns & Co.,
Ohio essentially follows the approach laid out in the Restatement of Torts.
See Restatement (Second) of Torts, supra,
§§ 766, 766A. Under Ohio law, a cause of ■ action for tortious interference with business relations or contract is established when “one who, without a privilege to do so, induces or otherwise purposely causes a third party not to enter into, or continue, a business-relationship with another, or perform a contract with another.”
Re/Max Int’l, Inc.
v.
Realty One, Inc.,
Read liberally, I construe the contractual interference claim as alleging that UCC&P caused UCMC to breach its existing contracts with the franchisees when, as a parent corporation seeking to cut its losses, it made a hasty decision, based on the fact that it was losing money, to sell its subsidiary to a buyer who was financially incapable of performing the terms of the contract.
29
Any such sale would have resulted in a breach of the Franchise Agreement because of the explicit provision, requiring sale to a financially healthy purchaser. Thus, assuming that UCC&P stood to benefit economically from the quick sale of UCMC to a purchaser who was ill-equipped financially to perform under the Franchise Agreement, the Amended Complaint alleges a sufficient basis to infer intent to cause, a breach of the contract. Further, development of the record may well reveal the infirmity of this claim.
30
Indeed,
The same cannot be said of the claims alleging tortious interference with prospective business relations. Plaintiffs do not identify the “prospective customers” with whom they hoped to form relationships,
31
nor do they allege a basis upon which it could be inferred that any such relationships would likely have been formed but for defendants’ deliberate interference, a deficiency that has led at least one court in Ohio to dismiss a tortious interference claim.
See Adkins v. General Motors Corp.,
Moreover, the Amended Complaint is bereft of allegations that defendants, in selling UCMC, intended to interfere with plaintiffs’ prospective business relations with any third parties. At most, plaintiffs allege that certain actions or decisions on the part of UCC and UCC&P, actions that were contemplated under the terms of the Franchise Agreements, resulted in adverse consequences to them. Nowhere is it alleged that defendants had a tortious intent, nor is there a basis in the Amended Complaint to infer such intent. For example, plaintiffs do not allege what benefit defendants could have hoped to derive from interfering with the prospective business relations between the franchisees and third parties, especially given the fact that the sale of UCMC effectively put defendants out of the marble cleaning business. Thus, it cannot even be inferred that by such interference the Non-Franchisor Defendants hoped to garner this business for themselves. Nor are any allegations madе that the Non-Franchisor Defendants had any other motivation that would have driven them to purposely interfere with the franchisee’s business relationships. Under the laws of California, Ohio and Texas, cause and effect, absent pleaded intent or sufficient facts giving rise to an inference of intent, are clearly insufficient to state a claim for tortious interference.
See Rickards v. Canine Eye Registration Found., Inc.,
Thus, because the Amended Complaint lacks any allegations supporting the notion that the Non-Franchisor Defendants intended to interfere with the prospective business relations of plaintiffs, and because it fails to allege any facts that would form the basis for inferring that there was a reasonable probability that they would have formed other business relations absent such interference, the claims for tortious interference with prospective' business relations fail as a matter of law. I therefore recommend that they be dismissed.
VII. The state statutory Claims
In addition to their breach of contract and common-law tort claims, plaintiffs allege violations of Texas, Connecticut and Massaehusetts consumer protection statutes (Am. Compl. at ¶¶ 76-87; ¶¶ 97-100; ¶¶ 93-96) and violations of the California Franchise Investment Law (Am.Compl. at ¶¶ 88-92). 33 Defendants challenge the adequacy of all of these claims, on the grounds that they are precluded by the choice of law provision in the Franchise Agreement, barred by the applicable statutes of limitations and because, assuming they are unaffected by the choice of law provision and were timely filed, the Amended Complaint fails to allege facts that would state causes of action for the violation of these statutes.' Because I find that the claims based on the Texas, Connecticut and California statutes are time-barred, there is no need to address defendants’ alternative grounds for dismissal. 34 However, because the claim based on the Massachusetts statute is not time-barred, the substance of the allegations in the Amended Complaint will be examined to determine whether they state a cause of action under the statute.
A. Texas Deceptive Trade Practices Act
The Texas Deceptive Trade Practices Act (TDTPA) is a consumer protection law that prohibits “false, misleading, or deceptive acts or practices in the conduct of any trade or commerce ....'” Tex. Bus. & Com.Code Ann. § 17.46(a) (West 1996). Essentially, plaintiff Maltz alleges that defendants violated this statute when, prior to his signing the Franchise Agreement, they conveyed to him false information about its terms and withheld material information about the chemicals, equipment and services offered under the contract, (Am.Compl. at ¶¶ 77-83.)
35
Even assuming that the allega
The TDTPA provides that all actions “must be commenced within two years after the date on which the false, misleading, or deceptive act or practice occurred or within two years after the consumer discovered, or in the exercise of reasonable diligence should have discovered the occurrence of the false, misleading, or deceptive act or practice.” Tex. Bus. & Com.Code Ann. § 17.565 (West 1996). The Amended Complaint alleges that the misrepresentations giving rise to the statutory violation occurred between May 24, 1991 and July 24, 1991. (Am.Compl. at ¶¶ 34-35.) The initial Complaint in this action was filed in Harris County Texas on October 27, 1995 (Pl.Br. at 1), clearly more than two years after the latest deceptive act alleged. Even applying the more generous accrual date used by defendants — August 8, 1991, the date on which Maltz executed his Franchise Agreement — the TDTPA claim is still barred under the two year limitations period.
Nor is the cause of action saved by the “discovery” provision of the statute, because plaintiffs concede in the Amended Complaint that Maltz discovered that the representations were false either sometime in 1992 (Am. Compl. at ¶ 38) or, with respect to the imminent sale of UCMC, in January, 1993. 36 (See Am.Compl. at ¶¶ 73-74.) Moreover, numerous exhibits attached to the Amended Complaint confirm that Maltz was aware, or with the exercise of reasonable diligence, should have been aware, that the representations made by the defendants were false more than two years prior to the filing of the Complaint. (See Am.Compl., Exs. 29, 32, 35-36, 41-42.) Thus, even giving Maltz the widest latitude permitted by the allegations in the Amended Complaint, his claim under the TDTPA is time-barred.
B. Connecticut Unfair Trade Practices Act
Connecticut’s Unfair Trade Practices Act (“CUTPA”) prohibits any person from “engaging] in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” Conn. Gen.Stat. Ann. § 42-110b(a) (West 1996). Plaintiff Lynch alleges that defendants violated this statute when defendant Jones made misrepresentations to her about the Marblelife system and its affiliation with UCC, and repeated the same misrepresentations allegedly made to Maltz during a meeting in Danbury, Connecticut on May 29, 1990. (Am.Compl. at ¶48,
see also
Am. Compl. at ¶ 34.) Lynch contends that she did not begin to fully discover that these representations were false until 1992. (Am. Compl. at ¶ 53.) However, when Lynch discovered or should have discovered the true nature of the alleged misrepresentations made to her is irrelevant, since no discovery rule applies to CUTPA claims. Moreover, assuming that the facts alleged would state a
In order to be timely, an action under the CUTPA must be brought no later than “three years after the occurrence of the violation.” Conn.Gen.Stat.Ann. § 42-110g(f) (West 1996). Connecticut courts have specifically held that no “discovery rule” applies to toll CUTPA claims.
Fichera v. Mine Hill Com.,
Plaintiffs assert that Lynch’s claim is nevertheless timely, because the statute of limitations was tolled under Connecticut’s narrow “continuing violation” doctrine, and that they “believe this narrow exception exists in the instant case.” (Pl.Br. at 19.) The eases cited by plaintiffs merely set forth the parameters of the continuing violation doctrine and do not support the application of the doctrine to this case.
The statute of limitations on a CUTPA claim will not begin to run “so long as a defendant is engaged in a continuing course of conduct.”
Vigneau v. Storch Eng’rs,
No. CV 890700122S,
Inasmuch as Lynch relies on the contention that defendants continued to wrongfully conceal their plans to sell UCMC’ (see Am .Compl. :at ¶¶ 72-73) as the basis of a “continuing wrong” that would toll the statute of limitations, such rebanee is misplaced. Plaintiffs contend that Freeman’s announcement on July 11, 1992 that UCMC and UCC&P were not seeking a buyer for UCMC provides the lynehpin needed to estabbsh a “continuing wrong.” However, even if this statement constitutes a misrepresentation, it is not related to the earlier misrepresentations abeged, which had nothing whatsoever to do with any impending sale of UCMC. Lynch’s CUTPA claim is entirely premised on the misrepresentations made during her meeting with UCMC officials on May 29, 1990 in Danbury Connecticut. Lynch nowherе alleges that she was told, prior to signing the Franchise Agreement, that the contract provision permitting sale of UCMC would not be exercised for any specified period of time. Freeman’s misrepresentation, therefore, cannot be coupled with the earber unrelated misrepresentations to constitute a “continuing wrong” for purposes of tolling CUTPA’s three-year statute of bmitations.
Moreover, even' if the necessary relationship could be shown between these two statements, according to the Amended Complaint, Freeman’s denial, which was the last of the misrepresentations, and thus the end of the continuing course of conduct, occurred on Jüly 11, 1992. (Am.Compl. at ¶ 73.) Thus,
C. The California Franchise Investment Law
California’s Franchise Investment Law (“CFIL”) makes it unlawful, inter alia, to willfully make untrue statements of material fact in a franchise circular. See Cal. Corp.Code § 81202 (West 1997). Plaintiffs Hackett,. Lynch and Selik allege that defendants made misleading statements in the Unit Franchise Offering Circular, and omitted to state certain material facts which would have made the statements not misleading, in violation of CFIL. (Am.Compl. at ¶¶ 89-92.) However, as with the claims under Texas and Connecticut law, even assuming that the allegations in the Amended Complaint are sufficient to state a cause of action under CFIL, they must be dismissed because they are barred by the applicable statute of limitations.
Under CFIL, a cause of action must be “brought before the expiration of four years after the act or transaction constituting the violation [or within] one year after the discovery by the plaintiff of the fact constituting the violation.” Cal.Corp.Code § 31308 (West 1997). It is unclear when the allegedly untrue statements were “made” in the Franchise Agreements, but at the very latest, the causes of action under CFIL accrued as of the time the plaintiffs signed the Agreements. Since the Amended Complaint states that Lynch signed her Franchise Agreement on November 1, 1990, 38 Hackett signed his agreement on June 21, 1990 and Selik signed his agreement on May 13, 1990 (Am.Compl. at ¶¶ 53, 45, 68), the operative outside dates for the filing of the Complaint, in order for the claims to be timely, occurred between May 13 and November 1, 1994. The Complaint was not filed until October 27, 1995, and the claims are thus time-barred.
Nor are the claims saved by applying the statute’s discovery rule. The Amended Complaint admits that Lynch, Hackett and Selik were aware that the representations in the Franchise Agreement were false some time in 1992. (Am.Compl. at ¶¶ 46, 54, 69.) Moreover, even absent these admissions, documents attached to the Amended Complaint make clear that these plaintiffs either knew or should have know of the falsity of the statements long before October 27, 1994. (See Am.Compl., Exs. 29, 31-42.) Finally, under any scenario, plaintiffs were aware of the purported falsity of the statements more than one year before the initial Complaint was filed, since the sale of UCMC occurred sometime in early 1993. (Hearing Tr. At 41; See Am.Compl., Ex. 42.) Thus, the CFIL claims are clearly time-barred and must be dismissed.
D. The Massachusetts Consumer Protection Act
The Massachusetts Consumer Protection Act (“MCPA”) provides in relevant part that “unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.” Mass. Gen.Laws. ch. 93A § 2(a). Lynch alleges that defendants violated the MCPA when Broockman and Jones made misrepresentations to her about the Marblelife system during meetings held in Massachusetts, in order to induce her into entering into the Franchise Agreement. (Am.Compl. at ¶¶ 94-96.) Defendants, citing scant law in support of their position, claim that the cause of action under the MCPA is barred by its four-year statute of limitations, see Mass.Gen. Laws ch. 260, § 5A and that ho tolling provision under Massachusetts law applies to MCPA claims. (Del.Br. at 25; Def. Reply Br. at 14.) Lynch, whose argument is equally bereft of legal authority, claims that the “discovery rule” saves the MCPA claim from being barred under the statute of limitations.
Whether or not the four-year statute of limitations bars the claim hinges on when the MCPA cause of action accrued, and there
The record as it now stands does not establish as a matter of law that Lynch’s claim under the MCPA is time-barred. The earliest date that Lynch admits she was aware of the falsity of the representations is 1992 (Am. Compl. at ¶ 54), which puts the claim well within the four-year statutory window under the MCPA. Moreover, defendants have not pointed to anything in the record that would support a finding that Lynch should have known of the falsity of the statements in early October of 1991. Therefore, the MCPA claim cannot be dismissed at this juncture as time-barred.
Defendants also attack the MCPA claim on the basis that, accepting all of the allegations in the Amended Complaint as true, plaintiffs fail to allege that the actions taken in violation of the MCPA occurred “primarily and substantially” within Massachusetts, as is required to state a claim under the MCPA.
See
Mass.Gen. Laws ch. 93A, § 11. The burden of proving that the conduct complained of did not occur primarily and substantially in Massachusetts rests on the defendant.
Id.; see also Clinton Hosp. Assoc. v. The Corson Group, Inc.,
Massachusetts courts have identified three factors that, at a minimum, should be considered by courts in deciding whether or not a deceptive act or practice occurred primarily within Massachusetts for purposes of the MCPA. Those faсtors, none of which standing alone is necessarily dispositive, are (1) where the deceptive statement was made; (2) the location of the plaintiff when the plaintiff received and acted on the deceptive statement; and (3) the situs where the plaintiff suffered his loss as a result of the deceptive act or practice.
Bushkin,
Plaintiffs allege that the deceptive statements underlying the MCPA claim were made to and received by Lynch during meetings that took place in Massachusetts. (Am. Compl. at ¶¶ 94-95.) Lynch would have sustained any injury resulting from these misrepresentations in California, where she resides and where her Marblelife franchise is located. (See Am.Compl at ¶ 6.) However, as to the critical fact of where Lynch relied on the misrepresentations, or where she signed her Franchise Agreement, the record is silent. Without additional facts, I cannot conclude that defendants have carried their burden of establishing that the deceptive conduct did not occur substantially and primarily in Massachusetts. Therefore, the claim under the MCPA cannot be dismissed. 39
CONCLUSION
For the foregoing reasons, I respectfully recommend that defendants’ motion to dismiss the Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure be granted in part and denied in part. Specifically, I recommend that (1) the state statutory claims brought pursuant to the Texas Deceptive Trade Practices Act, the Connecticut Unfair Trade Practices Act and the California Franchise Investment Law be dismissed; (2) all claims against defendant UCC be dismissed; (3) the remedy for any breach of warranty claim against defendants UCMC' and UCC&P be limited to the replacement or purchase price of the warrantied goods; and (4) all claims for tortious interference with prospective business relations be dismissed. Remaining in the ease are (1) the claim brought pursuant to the Massachusetts Consumer Protection Act; (2) the breach of contract claims against UCMC and UCC&P; (3) the breach of warranty claims against UCMC and UCC&P, as limited above; (4) the fraud claims аgainst all defendants except UCC; (5) the negligent misrepresentation claims against all defendants except UCC; (6) the civil conspiracy-claims against all defendants except UCC; and (7)'the tortious interference with contract claims against UCC&P and individual defendants Lutjen and Kennedy.
The parties are instructed to meet and submit a proposed plan and schedule for the completion of pre-trial discovery and other pre-trial activities in this matter within twenty days of the date of this order.
Pursuant to 28 U.S.C. § 636(b)(1)(C) and Rule 72 of the Federal Rules of Civil Procedure, the parties shall have ten days from service of this Report to file written objections.
See also
Rules 6(a) and 6(e) of the Federal Rules of Civil Procedure. Such objections shall be filed with the Clerk of the Court, with extra copies delivered to the chambers of the Honorable Kimba M. Wood, United States District Judge, and to the Chambers of the undersigned, Room 1660. Any requests for an extension of time for filing objections must be directed to Judge Wood. Failure to file objections will result in a waiver of those objections for purposes of appeal.
Thomas v. Arn,
Notes
. Plaintiffs' motion to discontinue this action without prejudice with respect to defendant Michael Neaiy was granted on November 11, 1996. Neary is, therefore, no longer a party to this action.
. Plaintiffs have agreed to dismiss their claims brought under the New York State Franchise Sales Act. (Memorandum of Law in Support of Plaintiffs' Response to Defendants’ Motion to Dismiss Plaintiffs’ Amended Complaint, undated ("Pl.Br.”), at 3; see also Transcript of Oral Argument, dated February 5, 1997 ("Hearing Tr.”), at 42.)
. At oral argument, the parties specifically consented to the Court’s consideration of the franchise and purchase agreements in deciding this motion, without converting it to a motion for summary judgment. (Hearing Tr. at 8-9.)
. The claim brought by plaintiff Ellen Lynch ("Lynch”) pursuant to the Massachusetts Consumer Protection Act, which I find infra survives this motion to dismiss, is, of course, governed by that statute and case law construing the statute.
. The forum selection clause in the franchise agreement states that ”[a]ny litigation arising out of or relating to this Agreement, or any breach thereof, shall be instituted in a court of competent jurisdiction in New York, New York.” (Union Carbide Marble Care, Inc. Unit Franchise Agreement, attached to Affidavit of Daniel Gildin as Exhibit A ("Franchise Agreement”), at ¶ 30.02.)
. The brief filed in support of the motion to transfer did not contend that venue was improper in Texas under 28 U.S.C. § 1391 and that the court should have therefore dismissed the case under § 1406. Rather, defendants relied wholly on the forum selection clause and the convenience of the parties and witnesses in arguing that the case should be transferred to New York.
. Moreover, strong public policy reasons support honoring choice of law clauses in franchise agreements where the franchiser has entered into a number of such agreements in various states, as is true in this case. See Capital Nat’l Bank of New York v. McDonald's Corp., 625 F.Supp. 874, 880 (S.D.N.Y.1986). The parties' choice of law provides the benefit of certainty as to what substantive law will be applied, and simplicity in multi-party litigation where potential parties are domiciled in different states throughout the country. In such cases, the interest of an individual plaintiff, such as Maltz, in having the law of his home state apply, cannot be said to outweigh these benefits.
. Defendants appear to argue that courts broadly interpret choice of law provisions in franchise agreements to govern tort as well as contract claims. See Def.Br. at 8 & n. 3; Def. Reply Br. at 6-7. However, the cases cited by defendants do not support this proposition. Indeed, those courts apply a similar analysis, albeit in reaching a different conclusion, as does this Court — looking to the language of the choice of law clause to determine its scope. Moreover, none of these cases apply Texas law and they therefore do not aid in determining how the choice of law clause at issue should be construed under Texas law. Defendants provide no support for their conclusion that convenience and expediency may override choice of law principles in determining the proper law to be applied in any given case, and this Court too has been unable to locate any such authority.
. For example, Maltz claims that he met with UCMC employees in New York, at which time the misrepresentations first made in Texas were repeated to him (Am.Compl. at ¶ 35); Began claims he attended a bogus demonstration of the Marblelife system in New York (Am.Compl. at ¶ 57); and Lynch claims that she attended a Marblelife meeting in Connecticut. (Am.Compl. at ¶ 49.)
. Some time in early 1993, Marblelifе was sold to Ed Williams, who owned a Marblelife franchise. Plaintiffs claim that the sale to Williams breached § 18.01 of the Franchise Agreement which required that any sale must be made to a "financially responsible and economically capable” party who could perform the obligations of the franchisor under the Franchise Agreements.
. The Amended Complaint obviously contains a typographical error in its assertion that UCMC was acting "solely as a conduit for the performance of UCMC’s business,” and I therefore read it as actually stating that UCMC was acting as a conduit for UCC and UCC&P's business. Defendants appear to read the Amended Complaint as the Court does, as evidenced by their arguments in support of their motion to dismiss these claims as to UCC and UCC&P.
. I reach this conclusion having applied New York alter ego law, as requested by the defendant, because New York is the state of incorporation of both UCC and UCC&P.
See Kalb, Voorhis & Co. v. American Fin. Corp.,
. With respect to the other claims in the Amended Complaint, I note that individuals from UCC&P are alleged to have directly participated in the conduct at issue. Therefore, UCC&P’s liability, if any, for that tortious conduct, would be' predicated on respondeat superior. As to UCC, as is discussed more fully infra, there is simply no basis asserted that would support alter ego liability for any of the claims in the Amended Complaint. Moreover, no individual from UCC is alleged to have committed any tortious act, and it therefore cannot be liable on a theory of respondeat superior. Plainly, no theory of liability is sufficiently asserted against UCC, and all claims against it must therefore be dismissed.
. Indeed, plaintiffs appear to rely heavily on the Union Carbide name association to establish a connection between UCC and UCMC. They highlight in each exhibit the words “Union Carbide” in the name "Union Carbide Marble Care, Inc.” as if it had some independent relevance in demonstrating a relationship of domination and control by UCC over UCMC. However, there is no issue over whether the two companies shared a part of each other’s names, nor does that fact, by itself, carry any weight in determining whether UCMC was UCC’s alter ego.
. Plaintiff has now had two opportunities to redraft the Complaint to properly allege a theory of alter ego liability as to UCC. No further amendments will be entertained unless new facts, presently unavailable, are uncovered during discovery that would support such a claim.
. Some of the documents, in fact, directly undercut the notion of "control” by UCC&P, such as portions of the UCMC business plan which clearly indicate that UCMC would be separately incorporated and staffed, and would maintain its own bookkeeping and financial structures. See Am.Compl.Ex. 1 at 7, 11, 29, 35, and UCMC’s Consolidated Financial Statements for December 31, 1991 and 1990, Am.Compl.Ex. 21.
. Both the Franchise and Purchase Agreements purport to limit UCMC’s liability for breach of warranty. The Franchise Agreement states that "Franchisee’s exclusive remedy and Franchisor’s exclusive liability for any products, equipment or chemicals delivered hereunder ... shall be Iimit- ' ed to the purchase price of the products, equipment or chemicals [or their] replacement.” (Franchise Agreement at ¶ 10.15.) The Purchase Agreement also contains a provision purporting to limit remedies for its breach (Purchase Agreement at ¶ 5), and a warranty disclaimer that states in pertinent part that
Seller warrants that Material delivered hereunder meets Seller's specification for Material or such other specifications as have been expressly made part hereof. SELLER NEITHER MAKES NOR INTENDS TO MAKE, ANY OTHER WARRANTIES, EXPRESS OR IMPLIED, AND IT EXPRESSLY EXCLUDES AND DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
(Purchase Agreement at ¶ 8) (capitalization in original).
. As with most of the claims asserted, the Amended Complaint does not specify which corporate defendants are alleged to have breached the warranties contained in the Franchise Agreements. Assuming that plaintiffs seek to hold UCC liable on a veil-piercing theory for UCMC’s breach, and, indeed, the Court can discern no other theory upon which this defendant could be held liable, for the reasons already discussed supra, they have failed to adequately plead alter ego liability. For that reason, the breach of warranty claims should be dismissed against UCC. As to UCC&P, as discussed supra, sufficient allegations in the Amended Complaint support alter ego liability for all claims sounding in contract, including the breach of warranty claims.
. Although the Amended Complaint does not specify by whom defendant Lutjen was employed, stating that at the time of the events complained of he was “an employee of UCC or one of its subsidiaries” (Am.Compl. at ¶ 15), at least one exhibit attached to the Amended Complaint demonstrates that he was a UCC&P employee. See Am.Compl. at Ex. 41.
. The merger and integration clause states, in relevant part, that the Franchise Agreement "constitute[s] the entire agreement between the parties ... [and] [franchisee acknowledges that he is entering into this Agreement ... not as a result of any representations about Franchisor made by its shareholders, officers, directors, employees, agents, independent contractors or other Marblelife franchisees, which are contrary to the terms herein set forth....” (Franchise Agreement at ¶ 27.01.)
. Moreover,
Rosenberg
and the other cases cited by defendants involve agreements containing express disclaimers regarding the specific subject matter of the misrepresentations at issue. They are therefore not particularly persuasive authority for determining how the general disclaimer in the merger and integration clause in the Franchise Agreements at issue here should be treated for purposes of determining reasonable reliance.
See, e.g., Manufacturers Hanover Trust Co. v. Yanakas,
. In defendants' initial motion to dismiss, which as previously noted was withdrawn in order to allow plaintiffs to cure the pleading deficiencies in that document, defendants challenged the adequacy of the fraud allegations under Rule 9(b) of the Federal Rules of Civil Procedure, contending that they were not pleaded with the requisite specificity. Although the Court has some concern over the vague and conclusoiy allegations of fraud against some of the individual defendants in the Amended Complaint, defendants do not challenge the fraud causes of action on this ground. Whether or not particular defendants can be held liable for any fraudulent conduct may be an appropriate issue for summary judgment.
. Indeed, in addition to the alleged deficiencies noted by defendants, I would point out that it is difficult to discern how the purported statements about the use of the Union Carbide name and trademark (See Am.CompI. at ¶ 34(6)) could even be considered false. Plaintiffs contend that they were told, prior to entering into the Franchise Agreements, that they could use the Union Carbide name; the fact that they could no longer use it after UCMC was sold does not make that statement false since plaintiffs do not allege that they were promised the use of the name even after a sale of UCMC. Moreover, .1 do not read the Amended Complaint, and the documents attached thereto, to allege that the franchisees were never permitted to use the Union Carbide name prior to the time UCMC was sold. Absent such an allegation, I cannot see how the statement can be viewed as either false or fraudulent.
. The negligence section of the Amended Complaint consists of paragraphs 117 through 118. Paragraph 118 makes the allegation that "Defendants were negligent in their management, use, operation, and all other aspects of its business dealings with Plaintiffs. Said negligence was the proximate cause of Plaintiffs’ injuries.” This allеgation is so overly broad, vague and bereft of factual support as to be meaningless. However, since the preceding paragraph refers to plaintiffs' reliance on the facts given to them by UCMC, I treat this as pleading negligent misrepresentation
. Defendants also claim that, as with the fraud claims, plaintiffs cannot show reasonable reliance on the negligent misrepresentations due to the merger and integration clause in the Franchise Agreement. I have already addressed and rejected that challenge supra.
. For example, the Amended Complaint mentions defendants Ehrens and Clerico but a single time, in the section defining the parties. There, plaintiffs merely identify the positions these defendants held with UCMC and conclusorily allege that they "approved, participated in and directed the unlawful conduct of which Plaintiffs complain.” (Am.Compl. at ¶¶11, 14.) No further mention is made of either of these defendants in the body of the Amended Complaint or in the numerous documents attached as exhibits which would suggest their roles in or connection with the alleged conspiracy.
. However, since it is not alleged that any employee of UCC participated in any fraudulent activity, and there are no other allegations in the Amended Complaint otherwise suggesting UCC’s participation in the purported fraudulent scheme, the Amended Complaint fails as a matter of law under Rule 12(b)(6) to slate a claim against UCC for civil conspiracy.
. As previously noted, no UCC employee is alleged to have participated in any tortious conduct, including tortious interference, and therefore these claims cannot survive against UCC. Moreover, since the only individual employees of UCC&P named as parties in the Amended Complaint are Kennedy and Lutjen, I read the words "its employees” in the allegation to refer to these individuals only.
. Read literally, the tortious interference with contract claim appears to be based on the mere sale of the company and the fact that plaintiffs were adversely affected by the sale because they lost their affiliation with Union Carbide and their right or opportunity to use the Union Carbide trademark. Since the contract explicitly granted defendants the right to sell UCMC (Franchise Agreement at ¶ 33.01(8)), and since it further specifically withheld any right to use of the trademark or any benefit of the Union Carbide name association once UCMC was sold (Id. at ¶¶ 19.01, 32.01(8)), it is doubtful that a claim would lie for these acts alone and their consequences.
. Although the parties have not raised this issue, and it is premature to decide it at this juncture, the Court notes that the mere sale of UCMC by UCC&P, even assuming it had the effect of interfering with plaintiffs' contractual or business relationships, might be considered privileged, and, therefore not actionable as a tort, under the laws of California, Ohio and Texas.
See. GHK Assocs. v. Mayer Group, Inc.,
. I view the tortious interference with prospective business claims as relating only to plaintiffs’ prospective relations with future customers, not its existing contractual relationship with UCMC. Any tortious interference with plaintiffs’ relationship with UCMC resulting from UCC&P's sale of UCMC would necessarily be in the nature of tortious interference with contract, discussed supra, since plaintiffs and UCMC were in a contractual relationship.
. Apparently, at some point, one of the frаnchisees, Al Santangelo, approached UCMC and informed it that he and a partner had a connection at Hyatt Hotels. See Am.Compl. at Ex. 41. There is no indication that any discussions that may have taken place developed beyond the preliminary stages or resulted.in a contract being signed. Moreover, Mr. Santangelo is not a plaintiff in this action.
. Specifically, Maltz alleges violations of the Texas Deceptive Trade Practices Act, Lynch alleges violations of the Massachusetts Consumer Protection Act and the Connecticut Unfair Trade Practices Act, and Lynch, Hackett and Selik allege violations of the California Franchise Investment Law. Began makes no claims under these statutes.
. As an initial matter, I do not agree that merely because the state statutory claims are not grounded in New York law, they are precluded by the choice of law provision in the Franchise Agreement. I do not view these claims as contractual in nature, as they are based on the fraudulent conduct of defendants which purportedly induced the plaintiffs to enter into the agreements. Moreover, the Second Circuit has explicitly rejected the argument urged here by defendants — that a choice of law provision in a franchise agreement precludes statutory claims arising under the laws of states other than the state chosen by the parties to govern their contract disputes.
Valley Juice,
. The same series of fraudulent misrepresentations and fraudulent omissions that provide the basis for the common law fraud, civil conspiracy and negligent misrepresentation claims, discussed and described supra, also underlie all of the state statutory claims.
. In their responsive papers, plaintiffs assert that the state statutory claims should not be dismissed on limitations grounds because there is a "genuine issue of fact” as to when Maltz, Lynch, Hackett and Selik discovered or should have discovered the deceptive statements underlying these claims. (Fl.Br. at 12, 17, 22.) However, in the Amended Complaint, plaintiffs state that these individuals began discovering that the representations were false in 1992, when UCC and UCC&P began seeking a buyer for UCMC.
(See
Am. Compl. at ¶¶ 38, 46, 54, 69.) Moreover, plaintiffs concede that as of approximately January, 1993, UCC and UCC&P "were advertising • the ‘benefits’ of the sale to Franchisees like Maltz.” (Am.Compl. at ¶ 74.) It is well-settled that formal judicial admissions in a pleading are conclusive against the party making the admission absent fraud or mistake.
See, e.g., Western World. Ins. Co. v. Stack Oil Inc.,
. The signature page of Lynch's Franchise Agreement, attached as part of Exhibit A to the Gildin Affidavit, actually indicates that Lynch signed the agreement on October 8, 1991. However, even if Lynch signed the agreement on that dale, her claim would nonetheless be barred under the three-year statute of limitations, since the Complaint was filed almost four years after that date.
. Again, based on Exhibit A to the Gildin Affidavit, it appears that Lynch actually signed her agreement on October 8, 1991. See supra note 6. The point is academic because, as with the CUT-PA claim, Lynch’s CFIL claim is still time-barred if the October 8, 1991 date is applied.
. Defendants also claim that the MCPA claim should be dismissed because it is duplicative of the plaintiffs’ breach of contract claims. However, Lynch is claiming that she was fraudulently induced to enter into the contract in violation of the MCPA. Therefore, the claim is not, as defendants argue, "dependent on” the breach of contract claim (see Def.Mem. at 25), nor does it merely allege harm as the result of a breach of contract. Indeed, the principle case relied on by defendants, Northeast Data Sys. v. McDonnell Douglas Computer Sys. Co., 986 F.2d 607 (1st Cir.1993), specifically recognizes that a MCPA claim essentially alleging that a party was fraudulently induced to enter into a contract, as does the one here, is not duplicative of a breach of contract claim and thus may be brought pursuant to the statute. Id. at 610. Moreover, the court in Northeast, while noting that those MCPA claims involving the parties' rights and obligations under their contract could not survive because they were essentially breach of contract claims, sustained that portion of plaintiff's MCPA claim alleging fraud in the formation of the contract. Id. at 611.