Kit Pack Co. v. Friedman et al

UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re
KIT PACK CO., a New Mexico
Corporation,
Debtor. 	No. 11-08-10206 SL
KIT PACK CO.,
Plaintiff,
v.
GERALD M FRIEDMAN,
THE MARVIN GROUP, INC.,
MARVIN LAND SYSTEMS, INC.,
MARVIN ENGINEERING CO., INC.,
and
LAPEER INDUSTRIES, INC.,
Defendants. 	Adversary No. 08-1031 S
MEMORANDUM OPINION ON MOTIONS
TO DISMISS TORT CLAIMS
On March 4, 2008, Kit Pack Co. (“Plaintiff”) filed this
adversary proceeding. 	It contains 59 paragraphs of facts and 3
counts for relief: 1) for turnover under 11 U.S.C. § 542(b), 2)
for a declaratory judgment determining the nature of the
relationships between Plaintiff and the various defendants and,
to the extent any defendant is an insider a recovery of
preferential payments, and 3) for breach of contract, fraud,
tortious interference with contractual relations, prima facie
tort, fraudulent and negligent misrepresentations, negligence,
conversion, breach of fiduciary duty and economic duress.
Defendants moved to dismiss the tort claims under Fed.R.Civ.P.
12(b)(6). 	For the reasons set forth below, the Court finds that
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the Motions to Dismiss are well taken in part, and will be
granted in part.
STANDARD
In reviewing a motion to dismiss for failure to state a
claim under Fed.R.Civ.P. 12(b)(6) the Court must accept all the
well-pleaded allegations of the complaint as true and must
construe them in the light most favorable to the plaintiff.
Alvarado v. KOB-TV, LLC, 493 F.3d 1210, 1215 (10 th Cir. 2007).
The Court should then look to the specific allegations in the
complaint to determine whether they plausibly support a legal
claim for relief. 	Id. n. 2.
DISCUSSION
The Defendants’ Motions seek to dismiss the tort claims
only. 	Therefore, the Court will examine the elements of each
tort claim alleged to determine if Plaintiff has plausibly
supported its legal claim for relief. 	First, however, it will
address the Defendants’ arguments that under Elliott Industries
Limited Partnership v. BP America Production Co., 407 F.3d 1091
(10th Cir. 2005), there can be no tort liability when there is a
contract in place. 	This argument goes too far. 	The Elliott
Industries court stated that the rule in New Mexico is “the
concept of freedom of contract and notions of contractually
assumed duties and liabilities can act to limit general tort
liability in certain circumstances when limited liability is
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expressly bargained for.” 	Id. at 1116 (Citation omitted.) 	There
are no allegations in this case that any party contracted for
limited liability.
1. 	FRAUD
In New Mexico, fraud consists of: 1) a misrepresentation of
fact, 2) either knowledge of the falsity of the representation or
recklessness on the part of the party making the
misrepresentation, 3) intent to deceive and to induce reliance on
the misrepresentation, and 4) detrimental reliance on the
misrepresentation. 	Williams v. Stewart, 137 N.M. 420, 429, 112
P.3d 281, 290 (Ct. App.), cert. denied, 137 N.M. 522, 113 P.3d
345 (2005). 	A party can recover damages proximately caused by
the fraud. 	Id.
Federal Rule of Civil Procedure 9(b) requires that “[i]n
alleging fraud or mistake, a party must state with particularity
the circumstances constituting fraud or mistake. 	Malice, intent,
knowledge, and other conditions of a person's mind may be alleged
generally.” 	Fed.R.Civ.P. 9(b).
Pleading fraud with greater specificity than is
normally required by the federal rules is necessary in
order to: (1) provide defendants with sufficient notice
of the acts of which the plaintiff complains to enable
them to frame a response, (2) prevent fishing
expeditions to uncover unknown wrongs, and (3) protect
defendants from unfounded accusations of immoral and
otherwise wrongful conduct. 	Knight v. E.F. Hutton and
Co., Inc., 750 F.Supp. 1109, 1114 (M.D.1990).
NCR Credit Corp. v. Reptron Electronics, Inc., 155 F.R.D. 690,
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692 (M.D. Fla. 1994).
The purpose of harmonizing Rule 8 “notice pleading”
requiring only a “short and plain statement” with the
particularity requirement of Rule 9(b) is to allow that
all pleadings be construed as to do “substantial
justice” as required under Rule 8(f). 	The requirements
of Rule 9(b) are not, however, to be lightly abrogated
in favor of the more liberal requirements of Rule 8,
but, rather, should be strictly applied in all cases
except where justice would otherwise be abridged.
Id.
But “Rule 9(b) is satisfied if the complaint gives enough
information to enable defendants to frame a responsive pleading
and assures that a sufficient basis exists for the allegations
made.” 	Trustees of the Plumbers and Pipefitters Nat’l Pension
Fund v. De-Con Mechanical Contractors, Inc., 896 F.Supp. 342, 346
(S.D.N.Y. 1995)(Citations omitted). 	“Plaintiffs must also
specifically allege the manner in which they relied on the fraud
to their detriment.” 	Id. (Citation omitted.) 	And, under Rule
9(b) the plaintiff must set forth allegations which show that
fraud has actually been committed; in the case of an alleged
false representation, it must appear from the complaint that the
alleged statements are false or misleading.” 	Bailey v.
Linsco/Private Ledger Corp., 136 F.R.D. 11, 14 n.4 (D. Me. 1991).
If there are multiple defendants, a plaintiff alleging fraud
must satisfy Rule 9(b) as to each defendant. 	That is, the
plaintiff must connect the allegations of fraud to each
individual defendant. 	Plumbers and Pipefitters, 896 F.Supp. at
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347. 	“A complaint sounding in fraud may not rely on sweeping
references to acts by all or some of the defendants because each
named defendant is entitled to be apprised of the facts
surrounding the alleged fraud.” 	Id. 	(Citation omitted.)
General allegations that the defendants conspired are
insufficient. 	Id. 	Allegations of alter-ego, even if true, are
also insufficient to attribute fraud to co-defendants. 	Id.
The complaint contains several allegations that Friedman
made representations, e.g., ¶¶ 46, 70, 71. 	There are no
allegations that any of the other defendants made any
representations, except through Friedman. 	¶ 70. 	And, the
complaint does not state which representations were made on
behalf of which defendant. 	It is not clear from the face of the
complaint which representations were false statement of fact, as
opposed to expectations or future events. 	And, there are no
allegations that Friedman (or other defendant) knew of the
falsity of the statement at the time or was reckless in making
the statement. 	It is also not clear when the representations
were made, where they were made, to whom they were made, or how
Plaintiff relied on the representations. 	There are no
allegations that Friedman (or others) intended to deceive
Plaintiff or intended to induce reliance. 	Plaintiff does allege
damages, but does not tie any specific set of damages to any
particular misrepresentations.
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The Court finds that it should dismiss the fraud claims both
under Rule 9(b) for failing to allege fraud with specificity and
under Rule 12(b)(6) for failing to allege knowledge or
recklessness and an intent to deceive or induce reliance. 	The
Court will grant Plaintiff 21 days in which to file an amended
complaint that alleges fraud in accordance with this opinion, or
dismiss this claim for relief as to certain defendants.
2. 	Tortious interference with contract
New Mexico recognizes the torts of intentional interference
with contract as well as interference with prospective
contractual relations. 	To establish a claim for intentional
interference with contract, plaintiff must allege facts
sufficient to show that he or she suffered damages when the
defendant improperly interfered with plaintiff’s existing
contractual relations, either through improper means or with an
improper motive. 	El Dorado Utilities, Inc. v. El Dorado Area
Water and Sanitation District, 137 N.M. 217, 223, 109 P.3d 305,
311 (Ct. App. 2005).
To establish a claim for interference with prospective
contractual relations, plaintiff must allege facts sufficient to
show that he or she suffered damages when the defendant
intentionally and improperly interfered with plaintiff’s
prospective contractual relationship by a) inducing or otherwise
causing a third person not to enter into or continue the
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prospective relation, or b) preventing the other from acquiring
or continuing the prospective relation. 	M & M Rental Tools, Inc.
v. Melchem, 94 N.M. 449, 453, 612 P.2d 241, 245 (Ct. App. 1980).
The Court finds that ¶¶ 52-57 adequately state a claim for
relief under tortious interference with contract against Friedman
only. 	This cause of action will not be dismissed as to Friedman.
However, if Plaintiff does not amend to allege facts to support a
claim against other Defendants within 21 days, it will be
dismissed as to them.
3. 	Prima facie tort
In New Mexico the elements of prima facie tort are: 1) an
intentional, lawful act by defendant, 2) an intent to injure the
plaintiff, 3) injury to plaintiff, and 4) the absence of
justification or insufficient justification for the defendant’s
acts. 	Schmitz v. Smentowski, 109 N.M. 386, 394, 785 P.2d 726,
734 (1990). 	The theory underlying this tort is that a party that
intends to cause injury to another should be liable for that
injury if the conduct is generally culpable and not justifiable
under the circumstances. 	Id. (Citing Restatement (Second) of
Torts § 870 (1977)). 	The act complained of must be committed
with the intent to injure plaintiff, but it need not be shown
that it was solely intended to injure plaintiff. 	Id. at 395, 785
P.2d at 735.
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Prima facie tort may be pleaded in the alternative. 	Id. at
396, 785 P.2d at 736. 	However, if at the close of evidence the
proof is susceptible to submission under another category of
tort, it should be submitted under that theory. 	Id.
The complaint alleges intentional acts by Friedman, some of
which are presumably lawful. 	It does not allege specific acts by
any other defendant. 	It also alleges that Friedman performed
with the intent to cause economic harm to Plaintiff, was
outrageous, not justifiable under the circumstances, and was
willful, wanton, malicious, reckless, oppressive, fraudulent and
in bad faith. 	This cause of action will not be dismissed as to
Friedman. 	However, if Plaintiff does not amend to allege facts
to support a claim against other Defendants within 21 days, it
will be dismissed as to them. 	Of course, until all evidence is
in the record, the propriety of this claim remains unknown.
4. 	Negligent misrepresentation
In New Mexico, negligent misrepresentation is an action in
tort under the general principles of the law of negligence.
Maxey v. Quintana, 84 N.M. 38, 42, 499 P.2d 356, 360 	(Ct.App.),
cert. denied, 84 N.M. 37, 499 P.2d 355 (1972). 	The discussion
immediately following will pertain to the negligent
misrepresentation claims.
5. 	Negligence
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In New Mexico, the elements of negligence are: 1) a duty or
obligation, recognized by the law, requiring the defendant to
conform to a certain standard of conduct, for the protection of
others against unreasonable risks, 2) a failure on defendant’s
part to conform to the required standard, 3) a reasonable close
causal connection between the conduct and the resulting injury,
and 4) actual loss or damages resulting to the plaintiff’s
interests. 	Lopez v. Maez, 98 N.M. 625, 630, 651 P.2d 1269, 1274
(1982)(Citing W. Prosser, Handbook of the Law of Torts § 30, at
143 (1971)).
The complaint does not state its theory of “duty.” 	For all
defendants except Friedman it does not allege any breaches of
duty. 	Other than boilerplate language in ¶ 79, it does not
allege what actions were the proximate causes of what damages
Plaintiff sustained.
The Court finds that it should dismiss the negligence claim
for failure to allege all essential elements. 	The Court will
grant Plaintiff 21 days in which to file an amended complaint
that alleges fraud in accordance with this opinion, or dismiss
this claim for relief as to certain defendants.
6. 	Conversion
Conversion is defined as the unlawful exercise of dominion
and control over personal property belonging to another in
exclusion or defiance of the owner’s rights, or acts constituting
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an unauthorized and injurious use of another’s property, or a
wrongful detention after demand has been made. 	Nosker v. Trinity
Land Co., 107 N.M. 333, 337-38, 757 P.2d 803, 807-08 (Ct. App.),
cert. denied, 107 N.M. 267, 755 P.2d 605 (1988).
The Court finds that ¶¶ 47 and 76 state a claim against
Friedman. 	Plaintiff will be allowed 21 days to amend to include
claims against other defendants.
7. 	Breach of fiduciary duty
A fiduciary relationship exists in all cases where there has
been a special confidence reposed in one who in equity and good
conscience is bound to act in good faith and with due regard to
the interests of one reposing the confidence. 	Moody v.
Stribling, 127 N.M. 630, 636, 985 P.2d 1210, 1216 (Ct. App.),
cert. denied, 127 N.M. 389, 981 P.2d 1207 (1999). 	The courts
recognize that a fiduciary duty can exist in a variety of
contexts depending on the relationship of the parties, and the
courts determine whether a particular defendant owes a duty to a
particular plaintiff as a matter of law. 	Id. 	Fraud is not an
element of this tort; rather, it is based on a duty of loyalty.
Id. at 638, 985 P.2d at 1218. 	A fiduciary breaches his duty by
placing his interests above those of the beneficiary. 	Id. 	To be
actionable, the breach must cause damages. 	Id.
The complaint, ¶ 75, seeks to hold Friedman liable for
breach of fiduciary duty only if the Court finds he is a
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1“In general, a party has a superior bargaining position if
he is the sole effective source of something needed by the other
party to avoid a severe economic loss, and the relationship is
not reciprocal.” 	Terrel, 86 N.M. at 422-23, 524 P.2d at 1038-39.
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stockholder, officer or investor. 	The Court finds that Plaintiff
has alleged sufficient facts which, if true, might constitute a
breach of fiduciary duty. 	This claim against Friedman will not
be dismissed. 	The complaint fails totally to allege any breaches
of fiduciary duty by other defendants, so the motion will be
granted to that extent absent amendment within 21 days.
8. 	Economic duress
The rationale of the doctrine [of economic compulsion
or economic duress] is to discourage or prevent an
individual in a stronger position, usually economic,
from abusing that power by presenting an unreasonable
choice of alternatives to another person in a weaker or
more vulnerable position, in a bargain situation. That
is to say the doctrine provides a cause of action so
that an individual can protect his economic interests
from the unreasonable exercise of power or advantage,
usually economic, in a bargain situation.
Terrel v. Duke City Lumber Co., Inc., 86 N.M. 405, 422, 524 P.2d
1021, 1038 (Ct. App. 1974), aff’d in part, rev’d in part, 88 N.M.
299, 540 P.2d 229 (1975). 	Economic duress cases are analyzed
through the tort framework (duty, breach, causation and damages.)
Id. 	The “duty” arises in one with a superior bargaining
position 1, who must use that position reasonably to assure the
weaker party a reasonable choice of alternatives. 	Id. at 423,
524 P.2d at 1039. 	“Breach” is basically an analysis of the
commercial reasonableness of the defendant’s actions, threats or
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refusals. 	Id. 	“Causation” means both “causation in fact” and
“proximate causation.” 	Id. 	So, a plaintiff must allege and show
that 1) the tortious act produced injury that otherwise would not
have occurred (causation in fact) and 2) the consequences were or
should have been contemplated or foreseen. 	Id. 	“[I]n a claim of
economic compulsion all damages suffered which were proximately
caused by the economic compulsion are recoverable.” 	Id.
The complaint does not sufficiently describe what duties the
defendants had toward Plaintiff or any details regarding the
parties unequal bargaining position. 	The complaint does not
allege how lack of alternatives resulted in the damages claimed.
This claim will be dismissed unless the Plaintiff amends to plead
this claim with sufficient detail and clarity within 21 days.
Honorable James S. Starzynski
United States Bankruptcy Judge
Date entered on docket: April 5, 2009
Copies to:
R Trey Arvizu, III
PO Box 1479
Las Cruces, NM 88004-1479
Linda S Bloom
PO Box 218
Albuquerque, NM 87103-0218
Chris W Pierce
Hunt & Davis, P.C.
P.O. Box 30088
Albuquerque, NM 87190-0088
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