Fairmont Homes, Inc. v. Shred Pax Corp.

754 F. Supp. 665, 1990 U.S. Dist. LEXIS 18197, 1990 WL 259093
CourtDistrict Court, N.D. Indiana
DecidedDecember 28, 1990
DocketNo. S90-140
StatusPublished

This text of 754 F. Supp. 665 (Fairmont Homes, Inc. v. Shred Pax Corp.) is published on Counsel Stack Legal Research, covering District Court, N.D. Indiana primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Fairmont Homes, Inc. v. Shred Pax Corp., 754 F. Supp. 665, 1990 U.S. Dist. LEXIS 18197, 1990 WL 259093 (N.D. Ind. 1990).

Opinion

MEMORANDUM AND ORDER

MILLER, District Judge.

This garden variety breach of contract/fraud case poses a legal issue that, amazingly, has been decided in no prior reported case, perhaps because the resolution of the issue seems self-evident: Whether a complaint that might be sufficient to state a claim under the procedural rules of the state in whose courts it was filed is subject to post-removal dismissal should it fail to satisfy more stringent federal rules. The court concludes that such a complaint is subject to dismissal, albeit dismissal without prejudice.

Fundamental questions lurk in this case’s deceptively simple factual scenario. Fair-mont Homes, Inc. wanted to buy an industrial shredding machine. Shred Pax Corporation makes industrial shredding machines. Shred Pax said, according to Fair-mont’s complaint, that its machine would double the performance of Fairmont’s existing equipment. Fairmont bought a Shred Pax machine and, again according to Fairmont, it did not meet the promised level of output.1 So Fairmont sued Shred Pax in an Indiana state court. Fairmont is incorporated, and has its principal place of business in, Indiana; Shred Pax is incorporated, and has its principal place of business in, Illinois; the amount in controversy exceeds $50,000.00. Because federal jurisdiction would exist, 28 U.S.C. § 1332, Shred Pax removed the case to this court, 28 U.S.C. § 1441, then moved to dismiss the complaint, Fed.R.Civ.P. 12(b)(6).

Unfortunately, Fairmont’s complaint is not as simple a document as the foregoing recitation suggests. It consists of ten counts. Two of the counts (I and II) allege breach of express warranty; two counts (III and IV) allege breach of implied warranty of fitness for the particular purpose; two counts (V and VI) allege breach of implied warranties of merchantability and fitness for ordinary purposes; two counts (VII and VIII) allege fraud; and two counts (IX and X) allege breach of contract, although the alleged breaches are the failure to live up to the warranties.

The motion to dismiss the fraud counts presents the dichotomy between state and federal law. Indiana Trial Rule 9(B) and Federal Rule of Civil Procedure 9(b) each require fraud to be pleaded “with particularity”. The state and federal courts, however, have construed that phrase differently. Indiana courts require the pleader to aver the time, place and substance of the false representations, the facts misrepresented, and the identification of what was procured by fraud. Dutton v. International Harvester Co., 504 N.E.2d 313, 318 (Ind.App. 1987); Wilson v. Palmer, 452 [667]*667N.E.2d 426 (Ind.App.1983); see generally Cunningham v. Associates Capital Services Corp., 421 N.E.2d 681 (Ind.App.1981).

The federal courts have gone slightly further. To state a claim for fraud consistent with Federal Rule 9(b), the plaintiff must also “identify particular statements and actions and specify why they are fraudulent.... Conclusory allegations do not satisfy the requirements of Rule 9(b) and subject the pleader to dismissal.... ” Veal v. First American Savings Bank, 914 F.2d 909, 913 (7th Cir.1990), reh’g denied 1990 WL 139483, 1990 US App Lexis 19762 (7th Cir.1990). Accord, DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th 1990), cert. denied — U.S.-, 111 S.Ct. 347, 112 L.Ed.2d 312 (1990); Design Time v. Synthetic Diamond Tech., 674 F.Supp. 1564, 1569 (N.D.Ind.1987). Most importantly, under the federal rule, allegations of fraud cannot be based on information and belief, except as to matters within the opposing party’s knowledge, and in the latter case, the allegations must be accompanied by a statement of the facts upon which the belief is founded. Luce v. Edelstein, 802 F.2d 49, 54 (2nd Cir.1986); Duane v. Altenburg, 297 F.2d 515, 518 (7th Cir.1962).

Fairmont, which alleged Shred Pax’s scienter “on information and belief”, seeks to march under the state procedural banner, while Shred Pax argues that the federal standard applies. Each side cites cases that did not consider this issue.2 Although neither counsel nor the court have uncovered a reported case squarely addressing the issue, the court believes that Federal Rule 81(c) provides the answer:

(c) Removed Actions. These rules apply to civil actions removed to the United States district courts from the state courts and govern procedure after removal. Repleading is not necessary unless the court so orders. In a removed action in which the defendant' has not answered, the defendant shall answer or present the other defenses or objections available under these rules within 20 days ...

Because this action was removed to a district court from a state court, the Federal Rules of Civil Procedure apply. A motion to dismiss for failure to satisfy the pleading requirements of Rule 9(b) is among the objections available under the Federal Rules of Civil Procedure, and hence is available to the Shred Pax. The Rule’s second sentence indicates an intent that repleading not be required each time a case is removed, but also a recognition that repleading may be necessary in some removed cases. Because Federal Rule 9(b) applies to this case, this is among those cases in which repleading may be necessary.

Most of the defects Shred Pax finds in Counts VII and VIII are illusory. The fraud counts reference the April 22, 1988 letter of Jill Myers, which is attached to the complaint; to the extent Fairmont alleges the representations in that letter to have been fraudulent, no better recitation is possible. That letter’s contents may be viewed as statements of fact concerning the capabilities of Shred Pax’s then-available equipment, rather than opinion or prediction of future events. Because the complaint must be viewed in the light most favorable to the plaintiff when challenged by a motion to dismiss, Yeksigian v. Nappi, 900 F.2d 101, 103 (7th Cir.1990), it can[668]*668not be said that the complaint fails to allege an actionable misrepresentation under Indiana law.

Nonetheless, Fairmont seeks to plead claims of fraud in Counts VII and VIII of the complaint, and to do so it must allege scienter.

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Related

James J. Duane, Jr. v. Walter P. Altenburg
297 F.2d 515 (Seventh Circuit, 1962)
Design Time, Inc. v. Synthetic Diamond Technology, Inc.
674 F. Supp. 1564 (N.D. Indiana, 1987)
Roberts v. Homelite Division of Textron, Inc.
649 F. Supp. 1440 (N.D. Indiana, 1986)
Sheldon v. Munford, Inc.
660 F. Supp. 130 (N.D. Indiana, 1987)
Crummie v. DAYTON-HUDSON CORPORATION
611 F. Supp. 692 (E.D. Michigan, 1985)
Dutton v. International Harvester Co.
504 N.E.2d 313 (Indiana Court of Appeals, 1987)
Hahn v. Ford Motor Co., Inc.
434 N.E.2d 943 (Indiana Court of Appeals, 1982)
Wilson v. Palmer
452 N.E.2d 426 (Indiana Court of Appeals, 1983)
Cunningham v. Associates Capital Services Corp.
421 N.E.2d 681 (Indiana Court of Appeals, 1981)
McKenzie v. Fairmont Food Co.
305 F. Supp. 163 (N.D. Ohio, 1969)
Luce v. Edelstein
802 F.2d 49 (Second Circuit, 1986)

Cite This Page — Counsel Stack

Bluebook (online)
754 F. Supp. 665, 1990 U.S. Dist. LEXIS 18197, 1990 WL 259093, Counsel Stack Legal Research, https://law.counselstack.com/opinion/fairmont-homes-inc-v-shred-pax-corp-innd-1990.