Malone v. Cemetary St. Dev. CV-94-339-B 02/17/95 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE
Steven E. Malone and John Cady
v. No. 94-339-B
Cemetary Street Development, Inc. and Raymond W. Godbout
O R D E R
The parties' dispute arose from a joint real estate
development venture that collapsed when the defendants dismissed
plaintiff Cady from the group. Plaintiffs sued alleging breach
of contract, intentional and negligent misrepresentation, and
guantum meruit. They also seek enhanced compensatory damages.
Defendants counterclaimed alleging breach of contract. Pending
before me are: (1) the plaintiffs' petition to attach real
estate; (2) defendants' motion to dismiss the breach of contract
and negligent misrepresentation counts; (3) defendants' motion
for summary judgment on plaintiffs' guantum meruit claim against
defendant Godbout and their claim for enhanced compensatory
damages; and (3) defendants' claim for a more particular
statement of plaintiffs' fraud allegations. I address each
pleading separately beginning with the defendants' motions. I. DEFENDANTS' MOTION TO DISMISS
When considering a motion to dismiss under Federal Rule of
Civil Procedure 12(b)(6), this court must accept all material
allegations as true and may grant dismissal only if no set of
facts entitles the plaintiffs to relief. Vartanian v. Monsanto
C o ., 14 F.3d 697, 700 (1st Cir. 1994) . I review the copy of the
parties' agreement, that is attached as an exhibit to the
complaint, as part of the complaint. Fed. R. Civ. P. 10(c); In
re Lane, 937 F.2d 694, 696 (1st Cir. 1991). I draw reasonable
inferences from the pleadings in the light most favorable to the
plaintiffs. Berniger v. Meadow Green-Wildcat Corp., 945 F.2d 4,
6 (1st Cir. 1991).
Defendants move to dismiss plaintiffs' breach of contract
claim asserting that no enforceable contract existed to support
plaintiffs' claim. Defendants also contend that plaintiffs'
negligent misrepresentation claim fails to state a cause of
action. I begin with the breach of contract claim.
A. Breach of Contract
The plaintiffs' complaint alleges that defendant Godbout,
who was the president and controlling shareholder of Cemetary
Street Development, Inc. ("CSD"), met with the plaintiffs, Steven
Malone and John Cady, beginning in May 1993 for advice and
2 assistance in developing land owned by CSD. The parties signed a
memorandum of understanding on September 8, 1993, which is the
agreement appended to the complaint. The agreement states that
the parties intend to form a joint venture partnership to develop
the land and it provides the structure for their joint venture
partnership agreement. It also says "[t]he details of this
agreement will be more fully described in a Formal Partnership
Agreement." As alleged, the plaintiffs worked toward developing
the property until January 1994 when the defendants terminated
their business relationship with Cady. No formal partnership
agreement was executed. The plaintiffs allege that the
defendants breached the memorandum of understanding by
terminating the parties' business relationship without paying the
plaintiffs for their services.
In order to state a breach of contract claim, plaintiffs
must allege that they had an enforceable contract with the
defendants. Moreover, whether an alleged contract is legally
sufficient is a guestion of law for the court to decide. See
Provencal v. Vermont Mut. Ins. Co., 132 N.H. 742, 745 (1990).
Here, plaintiffs base their contention that they had an
enforceable contract with CSD solely on the single-page
"Memorandum of Understanding" attached to the complaint. They do
3 not contend that the parties intended additional terms to be
inferred from their course of dealing, from the express terms in
the document, or from other agreements. Thus, in evaluating
defendants' motion to dismiss the breach of contract count, I
must determine whether this document, on its face, constitutes an
enforceable contract.
It is axiomatic that a contract is not enforceable unless it
is supported by adeguate consideration. "Consideration is
essential to all contracts, and may consist either in a benefit
to the promisor or a detriment to the promisee." Chasan v.
Village District of Eastman, 128 N.H. 807, 816 (1986) (citations
omitted). Moreover, consideration must be mutual, that is "a
legal detriment to the promisee (with a corresponding legal
benefit to the promisor), and . . . a bargained-for exchange."
Appeal of Lorden, 134 N.H. 594, 600 (1991).
The agreement at issue in the present case does not
obligate the plaintiffs to do anything. Nor does it confer any
benefit on the defendants. Thus, the memorandum of understanding
is not an enforceable contract because it lacks the mutuality of
obligation necessary for adeguate consideration. See, e.g.,
Albee v. Wolfeboro Railroad Co., 126 N.H. 176, 180 (1985).
Accordingly, I grant defendants' motion to dismiss the breach of
4 contract count.
B. Negligent Misrepresentation
Plaintiffs allege that defendants "represented to Plaintiffs
that the Plaintiffs would be reimbursed for their services in
accordance with the terms of the contract." The complaint
continues that plaintiffs relied on the representations and
performed services for the defendants while the defendants "knew,
or should have known, that their representations were false."
Finally, the claim concludes that "Defendants have breached their
duties by terminating the contract between the parties" and that
the plaintiffs have suffered damages as a result.
The elements of negligent misrepresentation are "the
defendant's negligent misrepresentation of a material fact and
the plaintiff's justifiable reliance on that misrepresentation."
Hydraform Prods. Corp. v. American Steel & Aluminum Corp., 12 7
N.H. 187, 200 (1985) (citing Inqaharro v. Blanchette, 122 N.H.
54, 57 (1982)). A representation is negligently made "when the
representor fails to use reasonable care in ascertaining the
facts." Island Shores Estates Condominium Ass'n v. Concord, 136
N.H. 300, 305 (1992). Also, a relationship must exist between
the representor and the person relying on the representation that
creates a duty to provide accurate and truthful information.
5 Id. at 306. Ordinarily, a promise of future action is not a
statement of fact and will only give rise to a cause of action
for negligent misrepresentation if the promise implies "a
statement of material fact about the promisor's intention and
capacity to honor the promise." Hydraform, 127 N.H. at 200; see
also Munson v. Raudonis, 118 N.H. 474, 477 (1978) . Thus, a claim
for negligent misrepresentation by a promise of future
performance will lie only if the promisor negligently represents
either his intent to perform or his capacity to perform as
promised.
Plaintiffs base their negligent misrepresentation claim on
Godbout's alleged misrepresentation concerning CSD's intention
rather than its capacity. Intentions are conscious thoughts.
Except perhaps in extraordinary circumstances not present here, a
person cannot unintentionally but negligently misrepresent his
own intentions. Thus, any misrepresentation claim based upon a
speaker's misrepresentations of his own intentions must
ordinarily be premised on an intentional misrepresentation
theory.
In this case, plaintiffs charge that Godbout misrepresented
CSD's intentions. Although in some instances a person may
negligently misrepresent a third party's intentions, it is
6 undisputed here that Godbout is the president and controlling
shareholder of CSD. Under these circumstances, CSD's intentions
are his intentions, and Godbout could not unintentionally but
negligently misrepresent CSD's intention to compensate the
plaintiffs for their services.1 Accordingly, plaintiffs'
negligent misrepresentation claim is dismissed.
II. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
Defendants move for summary judgment with respect to the
plaintiffs' claim for enhanced compensatory damages and on
plaintiffs' guantum meruit claim against Godbout. Summary
judgment is only appropriate "if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment
as a matter of law." Fed. R. Civ. P. 56(c). A "genuine" issue
is one "that properly can be resolved only by a finder of fact
because [it] may reasonably be resolved in favor of either
party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250
1 Plaintiffs' intentional misrepresentation claim is stated in count two and has not been challenged by the defendants.
7 (1986). A "material issue" is one that "affect[s] the outcome of
the suit . . . Id. at 248. The burden is on the moving party
to aver the lack of a genuine, material factual issue, Finn v.
Consolidated Rail Corp., 782 F.2d 13, 15 (1st Cir. 1986), and the
court must view the record in the light most favorable to the
non-moving party, according the nonmovant all beneficial
inferences discernable from the evidence. Oliver v. Digital
Equip. Corp., 846 F.2d 103, 105 (1st Cir. 1988) . If a motion for
summary judgment is properly supported, the nonmovant may not
rely on the pleadings to avoid summary judgment but must set
forth specific facts to show a genuine issue for trial. Lucia
v. Prospect St. High Income Portfolio, 36 F.3d 170, 174 (1st Cir.
1994). I begin with the claim for enhanced compensatory damages.
A. Enhanced Compensatory Damages
New Hampshire allows enhanced compensatory damages only in
limited circumstances: "when the act involved is wanton,
malicious, or oppressive." Vratsenes v. N. H. Auto., 112 N.H.
71, 73 (1972); see also Munson, 118 N.H. at 479. Also, enhanced
damages have been "reserved for intentional torts committed under
exceptionally unsavory circumstances." DCPB, Inc. v. Lebanon,
957 F .2d 913, 915 (1st Cir. 1992).
8 Defendants challenge plaintiffs' claim for enhanced damages
with defendant Godbout's affidavit stating that he acted in good
faith and never bore ill will, malice or hatred toward
plaintiffs. Plaintiffs respond that the circumstances of the
business arrangement and defendant's actions warrant enhanced
damages. In support of their claim, plaintiffs attach the
affidavit of plaintiff Malone who recounts the dealings between
the plaintiffs and defendants, that they met through an
intermediary, that plaintiffs provided advice and assistance in
developing the property, that they agreed to specific terms for
their limited partnership agreement, and that defendants
terminated their relationship before plaintiffs received any
payment. Malone concludes:
Based on the facts set forth above, it is my view that the Defendants got John Cady and me to perform all of the services outlined above on their behalf and, after the work was performed and the Defendants benefited therefrom, the Defendants are now seeking to back out of the contract. To me this is malice, ill will, or hatred towards the Plaintiffs.
Beyond the failure of the business arrangement, plaintiffs
offer no specific facts of egregious conduct by defendants to
show wanton, malicious or oppressive actions against plaintiffs.
C f ., e.g., Wilko of Nashua, Inc. v. TAP Realty, Inc., 117 N.H.
843, 848-50 (1977) (holding that defendant's alteration of an assignment of a lease, recording the fraudulent document, and
refusal to withdraw the fraudulent assignment constituted
aggravating circumstances supporting enhanced damages); Morris v.
Ciborowski, 113 N.H. 563, 566 (1973) (affirming enhanced damages
where defendant tried unsuccessfully to buy land and then
intentionally "cleared part of the parcel he had continually
tried to buy, destroying or removing shrubs and trees, boundary
lines, fences, fouling a brook, and interfering with [the
plaintiff's] other incidents of ownership"). Nor have they
attempted to support their theory in count two of the complaint
that defendants intentionally misrepresented their intentions to
compensate plaintiffs for their services beyond Malone's opinion
in his affidavit. Thus, plaintiffs ask this court to infer
malice from the defendants' termination of their business
arrangement before plaintiffs received their expected
compensation or based on Malone's opinion of the defendants'
intentions.
Under the summary judgment standard this court must draw
reasonable inferences in favor of the nonmovant, the plaintiffs
here. However, to be reasonable, "a suggested inference must
ascend to what common sense and human experience indicates is an
acceptable level of probability." National Amusements, Inc. v.
10 Dedham, No. 91-1176, slip op. at 27 (1st Cir. January 4, 1995).
This court is not obliged "to draw unreasonably speculative
inferences." Mesnick v. General Electric Co., 950 F.2d 816, 826
(1st Cir. 1991), cert, denied, 112 S. C t . 2965 (1992). Although
guestions of state of mind and intent are generally left for the
jury, "summary judgment may be appropriate if the nonmoving party
rests merely upon conclusory allegations, improbable inferences,
and unsupported speculation." Goldman v. First Na t '1 Bank, 985
F .2d 1113, 1116 (1st Cir. 1993).
The plaintiffs have not shown "exceptionally unsavory
circumstances" that would allow an award of enhanced damages.
See DCPB, Inc., 957 F.2d at 915. I find no logical connection
between the failure of the parties' business relationship, as
described by Malone, and his conclusion that the defendants bore
him malice, hatred, and ill will. Moreover, plaintiffs have not
attempted to respond to the motion by providing evidentiary
support for their intentional misrepresentation claim. The mere
fact that the plaintiffs did not receive the compensation they
expected for their services does not rise to the level of malice
by the defendants. The plaintiffs offer nothing more than the
unhappy circumstances of a failed business relationship.
When the nonmovant bears the burden of proof at trial on an
11 issue and, in opposing summary judgment, fails to make a showing
sufficient to sustain an element of the claim, "the failure of
proof as to an essential element necessarily renders all other
facts immaterial, and the moving party is entitled to judgment as
a matter of law." Smith v. Stratus Computer, Inc., 40 F.3d 11,
12 (1st Cir. 1994). Because plaintiffs have failed to counter
defendant's affidavit that he bore no malice, ill will or hatred
toward the plaintiffs, they have failed to carry their burden of
proof on enhanced damages. Summary judgment is granted in favor
of the defendants on count four and enhanced damages are not
available in this case.
B. Godbout's Personal Liability for Quantum Meruit Claim
Under the eguitable doctrine of unjust enrichment, "one
shall not be allowed to profit or enrich himself at the expense
of another contrary to eguity." Pella Windows & Doors v. Faraci,
133 N.H. 585, 586 (1990) guoting (Cohen v. Frank Developers,
Inc., 118 N.H. 512, 518 (1978)). The remedy provided by guantum
meruit allows a claimant to recover the reasonable value of his
services despite the absence of a contract or even if he is in
material breach of contract. See Adkin Plumbing & Heating Supply
Co. v. Harwell, 135 N.H. 465, 467 (1992); Burgess v. Queen, 124
N.H. 155, 161-62 (1983); R. J. Berke & Co. v. J. P. Griffin,
12 Inc., 116 N.H. 760, 764 (1976).
Defendants move for summary judgment on behalf of defendant
Godbout on the grounds that only CSD allegedly benefitted from
plaintiffs' services, not Godbout individually. They argue that
an individual shareholder cannot be held liable for the debts of
the corporation. Plaintiffs first respond that Godbout is liable
in guantum meruit based upon their allegations that he
intentionally and negligently misrepresented CSD's intention to
perform their agreement to form a limited partnership. Next they
argue that Godbout should be held liable for CSD's obligations to
prevent fraud and injustice.
I find no merit in plaintiffs' argument that Godbout's
alleged misrepresentations render him liable for corporate
obligations in guantum meruit. The complaint alleges benefit
only to CSD which owned the property and plaintiffs have not
offered proof that Godbout individually benefitted from the
services they allegedly performed. In order to hold Godbout
personally liable for CSD's alleged corporate liability, the
plaintiffs must offer properly supported facts showing
circumstances that would reguire the eguitable remedy of
"piercing the corporate veil." See Terren v. Butler, 134 N.H.
635, 639-41 (1991). This they have not done. Mere invocation of
13 a legal theory will not stave off summary judgment when the
moving party has met its burden by showing the absence of
disputed facts on the issue. I grant summary judgment in favor
of Godbout on plaintiffs' claim for guantum meruit.
III. DEFENDANTS' MOTION FOR A MORE PARTICULAR STATEMENT
Defendants ask that the plaintiffs be ordered to state the
circumstances that they allege constitute fraud with greater
particularity pursuant to Federal Rule of Civil Procedure 9 (b).
They contend that two paragraphs, thirty and thirty-one, are
ambiguous as to whether the alleged misrepresentations are only
in the agreement or whether the plaintiffs allege other
misrepresentations in addition to the agreement. Plaintiffs
respond that the complaint sufficiently notifies the defendants
of the claim against them.
In a diversity case, a challenge to the particularity of
pleading fraud raises a procedural guestion to be resolved under
the Federal Rules of Civil Procedure rather than an issue of the
substantive elements of fraud governed by state law. Hayduk v.
Lanna, 775 F.2d 441, 443 (1st Cir. 1985) . Rule 92 "reguires
2 Federal Rule of Civil Procedure 9(b) provides: In all averments of fraud or mistake, the
14 specification of the time, place, and content of an alleged false
representation, but not the circumstances or evidence from which
fraudulent intent could be inferred." McGintv v. Beranger
Volkswagen, Inc., 633 F.2d 226, 228 (1st Cir. 1980). The
particularity requirement of Rule 9 is intended "(1) to place the
defendants on notice and enable them to prepare meaningful
responses; (2) to preclude the use of a groundless fraud claim as
a pretext to discovering a wrong or as a 'strike suit'; and (3)
to safeguard defendants from frivolous charges which might damage
their reputations." New England Data Services, Inc. v. Becher,
829 F.2d 286, 289 (1st Cir. 1987) . The rule prevents a plaintiff
from alleging fraud first and then using discovery to search for
circumstances to support the claim. Hayduk, 775 F.2d at 443. But
see New England Data Services, 829 F.2d at 291 (holding that in
mail fraud cases the plaintiff must be allowed some discovery in
order to plead particular circumstances that are peculiarly
within the control of the defendant).
In their intentional misrepresentation claim, the plaintiffs
allege in paragraph D that "[t]he defendants, through the actions
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.
15 of Defendant Godbout, misrepresented to the Plaintiffs that CSD
would pay the Plaintiffs for their services under the terms set
forth in the contract." This allegation, based on the contract,
sets forth the parties involved, the place and content of the
alleged misrepresentation, and, in context, sets the time between
September 1993 and January 1994. The plaintiffs' next paragraph
says: "The Defendants represented to the Plaintiffs that CSD
would pay the Plaintiffs for their services with the intention to
induce the Plaintiffs' reliance on said representations and to
perform said services." This paragraph is much less explicit as
to date and the source of the representation. The defendants'
concern is whether plaintiffs are alleging misrepresentation
based solely on the parties' agreement or whether they are
alleging other promises to pay for plaintiffs' services. The
defendants' apprehension is well conceived as the second
paragraph, based on its terms and context, seems to allege
misrepresentations other than those alleged in the previous
paragraph but without the necessary detail.
Plaintiffs must amend their complaint within twenty days of
the date of this order to describe in detail the time, place, and
manner of the alleged misrepresentations referred to in paragraph
thirty-one of the original complaint. If plaintiffs do not amend
16 their complaint within the time provided, paragraph thirty-one
will be stricken from the complaint.
IV. PLAINTIFFS' PETITION FOR AN ATTACHMENT
The plaintiffs petition for permission to place an
attachment on the real estate of the defendants, Godbout and CSD,
for the amount of $927,840 plus costs, attorneys' fees, and
enhanced compensatory damages. The availability of a prejudgment
attachment is determined in federal court by applying the
applicable law of the forum state. Fed. R. Civ. P. 64; Diane
Holly Corp. v. Bruno & Stillman Yacht Co., 559 F. Supp. 559, 560
(D.N.H. 1983). In New Hampshire, prejudgment attachments may be
granted only after notice to the defendant, and upon defendant's
objection, following a hearing. N.H. Rev. Stat. Ann. 511-A:2 &
511-A:3 (1983). At the hearing, "the burden shall be upon the
plaintiff to show that there is a reasonable likelihood that the
plaintiff will recover judgment including interest and costs on
any amount egual to or greater than the amount of the
attachment." N.H. Rev. Stat. Ann. 511-A:3.
At this juncture, where several of plaintiffs' claims have
been eliminated, the current petition to attach no longer
addresses the merits of the plaintiffs' case. In fairness to
17 both sides, I dismiss the present petition without prejudice to
allow the plaintiffs to draft a new petition, if they so desire,
in light of their surviving claims.
V. CONCLUSION
For the foregoing reasons defendants motion to dismiss
(document number 5) is granted so that count one (breach of
contract) and count three (negligent misrepresentation) are
dismissed. Defendants' motion for summary judgment (document
number 6) is granted so that count four (enhanced damages) and
plaintiffs' claim in guantum meruit against defendant Godbout
individually in count five (guantum meruit) are dismissed.
Defendants' motion for a more particular statement of fraud
(document number 7) is granted in part; plaintiffs shall have
twenty days to amend their complaint to allege additional claims
of fraud with particularity. Plaintiffs' petition to attach
(document number 2) is dismissed without prejudice.
SO ORDERED.
Paul Barbadoro United States District Judge
February 17, 1995
18 cc: Jonathan Flagg, Esg. Frank Spinella, Esg.