Killough et al v. Monkress et al
Filing
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MEMORANDUM OPINION AND ORDER the Partial Motion to Dismiss 42 is GRANTED as to the promissory fraud claim, and that claim is DISSMISSED WITH PREJUDICE. The motion is DENIED as to the fraudulent suppression and fraudulent misrepresentation claims. Signed by Judge Abdul K Kallon on 4/17/2019. (AFS)
FILED
2019 Apr-17 PM 03:23
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
NORTHEASTERN DIVISION
DOUG KILLOUGH and
TECHNICAL CONSULTING
SOLUTIONS, INC.,
Plaintiffs,
vs.
PHIL MONKRESS and ALL
POINTS LOGISTICS, LLC,
Defendants.
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Civil Action Number
5:17-cv-00247-AKK
MEMORANDUM OPINION AND ORDER
This action arises from the alleged breach of a purported oral agreement
between Doug Killough, the owner of Technical Consulting Solutions, Inc.
(“TCS”), and Phil Monkress, the owner and CEO of All Points Logistics, LLC
(“APL”). Doc. 41. The court previously dismissed the fraud claims and gave
Killough and TCS leave to amend those claims. Doc. 39. Killough and TCS have
complied. Doc. 41. Monkress and APL have now moved to dismiss the repleaded
fraud claims, doc. 42, contending that the plaintiffs fail to allege fraud with
particularity and that the promissory fraud claim is not sufficiently distinct from
the breach of contract claim. See doc. 42. For the reasons explained below, the
motion is due to be granted solely as to the promissory fraud claim.
I.
STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain “a
short and plain statement of the claim showing that the pleader is entitled to relief.”
“[T]he pleading standard Rule 8 announces does not require ‘detailed factual
allegations,’ but it demands more than an unadorned, the-defendant-unlawfullyharmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)).
Mere “‘labels and
conclusions’” or “‘a formulaic recitation of the elements of a cause of action’” are
insufficient.
Id. at 678 (quoting Twombly, 550 U.S. at 555).
“Nor does a
complaint suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual
enhancement.’” Id. (quoting Twombly, 550 U.S. at 557). Additionally, fraud
claims are subject to the heightened pleading standard imposed by Rule 9(b) of the
Federal Rules of Civil Procedure.
Under Rule 9(b), a plaintiff must allege
“(1) precisely what statements or omissions were made in which documents . . . ;
(2) the time and place of each such statement and the person responsible for
making . . . them; (3) the content of such statements and the manner in which they
misled the plaintiff; and (4) what the defendant obtained as a consequence of the
fraud.” FindWhat Inv’r Grp. v. FindWhat.com, 658 F.3d 1282, 1296 (11th Cir.
2011).
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Federal Rule of Civil Procedure 12(b)(6) permits dismissal when a
complaint fails to state a claim upon which relief can be granted. When evaluating
a motion brought under Rule 12(b)(6), the court accepts “the allegations in the
complaint as true and construe[s] them in the light most favorable to the plaintiff.”
Hunt v. Aimco Props., L.P., 814 F.3d 1213, 1221 (11th Cir. 2016). However, “[t]o
survive a motion to dismiss, a complaint must . . . ‘state a claim to relief that is
plausible on its face.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570).
A complaint states a facially plausible claim for relief “when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Id. In other words, the complaint
must establish “more than a sheer possibility that a defendant has acted
unlawfully.” Id.; see also Twombly, 550 U.S. at 555 (explaining that “[f]actual
allegations [included in the complaint] must be enough to raise a right to relief
above the speculative level.”).
II.
FACTUAL AND PROCEDURAL BACKGROUND 1
Killough worked at Booz Allen Hamilton and led a team that provided
engineering services to Boeing and Northrop Grumman for their missile defense
contracts. Doc. 41 at 3-4. When Booz Allen pulled out of that market, Killough
1
The court adopts and incorporates by reference the facts set forth in its prior
Memorandum Opinion and Order. See doc. 39 at 4-6.
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started TCS and began discussions with Boeing and Northrup Grummon about
having TCS service their missile defense contracts. Id. at 4. An employee at
Boeing suggested that Killough and TCS partner with a larger company, and
suggested that Killough contact Monkress to discuss partnering with APL. See id.
at 4-5.
Killough and Monkress then negotiated an agreement under which
Killough would work for APL to service the Boeing and Northrup Grummon
contracts and other contracts brought to APL by Killough (the “TCS-related
contracts”). Id. at 5. In addition, the parties reached an oral agreement “under
which Killough would receive 50% of the profits from the TCS-related contracts,
[and] APL also agreed that it would eventually subcontract the work to TCS once
TCS was ready to service the TCS-related contracts by itself.” Id. at 6. When the
parties learned that APL could not subcontract the work, Killough and APL agreed
that APL would transfer the contracts to TCS when TCS was ready. Id. at 7.
According to TCS, Killough received profit-sharing payments each quarter
that APL and Monkress represented were equal to half of the profit from the TCSrelated contracts. Id. at 8. Although it was not required by the parties’ agreement,
APL and Monkress also provided Killough with profit statements that outlined the
income and costs associated with the contracts. Id. at 8. According to TCS and
Killough, the APL-generated profit statements overstated the fringe benefits,
overhead costs, and general and administrative costs associated with the TCS4
related contracts. Id. at 12. The statements also reflected a higher “WRAP rate”
than the “rate provided to contracts to procure the TCS-related contracts.” Id.2
Killough and TCS allege that they learned of the purported misrepresentations in
the profit statements after learning that APL kept a second set of books “that more
accurately detailed the costs and income for the TCS-related contracts” and after
talking with APL’s office manager about the costs associated with the contracts.
Id. at 10-11. By overstating the costs, Monkress and APL kept more than their
share of the profits they were entitled to under the parties’ Agreement. Id. at 13.
Killough and TCS also allege that when Killough decided to exercise his
right to have the TCS-related contracts transferred to TCS, Monkress discharged
Killough. Id. at 14. However, after employees and customers expressed anger
about the termination, Monkress offered to rehire Killough and “on behalf of APL,
and reoffered to pay Killough 50% of the profits from the TCS-related contracts . .
. .” See id. at 15. Killough accepted the offer to return, but Monkress and APL did
not make the allegedly agreed-upon profit sharing payments to Killough. Id. at 16.
In addition, Monkress discharged Killough again in September 2015 without
transferring the contracts to TCS. Id. at 17. This action followed.
2
According to Killough, the “WRAP rate is effectively a multiplier that is used on a
direct labor cost to provide the overall hourly cost of work[] performed on a government
contract.” Doc. 41 at 13.
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III.
ANALYSIS
In the Third Amended Complaint, Killough asserts claims against APL and
Monkress for fraudulent misrepresentation and fraudulent suppression, and
Killough and TCS assert a promissory fraud claim against the defendants. See doc.
41 at 19, 22, 25, n. 3-7. The defendants contend that these claims do not satisfy
Rule 9, and have moved to dismiss them. Doc. 42 at 3-4. Rule 9(b) requires a
party “alleging fraud . . . [to] state with particularity the circumstances constituting
fraud.” Fed. R. Civ. P. 9(b). This entails alleging “(1) precisely what statements
were made in what documents or oral representations or what omissions were
made, (2) the time and place of each such statement and the person responsible for
making (or, in the case of omissions, not making) same, (3) the content of such
statements and the manner in which they misled the plaintiff, and (4) what the
defendants obtained as a consequence of the fraud.” Ziemba v. Cascade Int’l, Inc.,
256 F.3d 1194, 1202 (11th Cir. 2001) (quoting Brooks v. Blue Cross & Blue Shield
of Fla., Inc., 116 F.3d 1364, 1371 (11th Cir. 1991)).
A.
Fraudulent Misrepresentation and Suppression Claims
To state a claim for fraudulent misrepresentation, Killough must allege facts
showing that (1) APL and Monkress made a false representation (2) about a
material fact, (3) Killough relied on the false representation, and (4) Killough
suffered actual damage as a result of his reliance. Spooner v. State Farm Mut.
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Auto. Ins. Co., 709 So. 2d 1157, 1160 (Ala. 1997) (quotation omitted). And, to
state a claim for fraudulent suppression, Killough must allege that (1) the
defendants suppressed an existing, material fact, (2) the defendants had a duty to
disclose, (3) the defendants had knowledge of the fact, (4) Killough’s lack of
knowledge induced him to act, and (5) Killough suffered actual damages as a
result. Hardy v. Blue Cross & Blue Shield of Alabama, 585 So. 2d 29, 32 (Ala.
1991) (citations omitted). The defendants contend that Killough failed to allege a
false representation or suppression of a material fact, detrimental reliance, or that
he suffered an actual injury from the alleged misrepresentation or suppression apart
from the damages caused by the breach of the alleged oral contract. Doc. 42 at 412. The court addresses these contentions in turn.
1.
Whether Killough has pleaded a false representation or
suppression of a material fact
To show materiality, Killough alleges that the APL-generated profit
statements he received inflated the costs attributed to the TCS-related contracts by
overstating “the fringe benefits, overhead, and [general and administrative
expenses] line items.” Doc. 41 at 9-12. Killough further alleges that “the ‘WRAP
rate’ in the costs on the APL-generated profit statements was substantially higher
than the WRAP rate provided to contractors to procure the TCS-related contracts”
and that the “higher WRAP rate was the result of APL and Monkress attributing a
disproportionately large share of fringe benefits, overhead, and G&A costs to the
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TCS-related contracts.” Id. at 12-13. Taking these allegations as true, as the court
must at this juncture, they are sufficient to identify the specific alleged false
material representations contained in the profit statements APL provided to
Killough. To put it in simple terms, Killough maintains that Monkress and APL
inflated the costs to reduce the share of the profits he was entitled to receive.
Similarly, the allegations are sufficient to show that APL suppressed material
information, i.e., the actual costs of the line items reported in the profit statements.
2.
Whether Killough has adequately pleaded reliance
To show reliance, Killough alleges that he relied on the false representations
“by continuing his relationship with APL, accepting the profit payments, and not
investigating the matter.” Doc. 41 at 20. The defendants argue those allegations
are not sufficient in part because they do not show that Killough did anything
beyond what he was already contractually obligated to do. Doc. 42 at 10. That
argument is flawed, however, because Killough was not contractually obligated to
continue working with APL.
Perhaps in recognition of this point, the defendants also argue that Killough
has not alleged reliance because he failed to allege any facts showing that he
changed his course of action based on the alleged misrepresentations in the profit
statements. Docs. 42 at 9-10; 46 at 3-4. Under Alabama law, Killough must plead
“that the misrepresentation actually induced [him] to change [his] course of
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action.” Hunt Petroleum Corp. v. State, 901 So. 2d 1, 4 (Ala. 2004) (citation
omitted). And, “[i]f [Killough] would have adopted the same course irrespective
of the misrepresentation and would have sustained the same degree of damages
anyway, it cannot be said that the misrepresentation caused any damage . . . .’” Id.
(quotation omitted). Killough contends that his acceptance of inadequate profit
payments from APL is sufficient to show reliance and the requisite change of
course on his part. Killough cites Braswell v. ConAgra, Inc., 936 F.2d 1169 (11th
Cir. 1991), doc. 45 at 7-8, a case in which the defendant contracted with the
plaintiffs to raise broiler chickens and paid the plaintiffs based on the weight of the
chickens, to support his contention. 936 F.2d at 1172. The plaintiffs in Braswell
asserted breach of contract and fraud claims based on their allegations that the
defendant intentionally underweighed the chickens over an eight-year period,
thereby causing the plaintiffs to accept lower payments than they were entitled to
under the contract. Id. Applying Alabama law under the former justifiable-reliance
standard, 3 the Eleventh Circuit affirmed the district court in part because the
evidence showed that the “plaintiffs accepted inadequate payment in reliance on
the false weights.” Id. at 1174.
In Hunt Petroleum Corporation v. State, the Supreme Court of Alabama
criticized the Eleventh Circuit’s analysis in Braswell, noting that “no Alabama
3
In Foremost Insurance Co. v. Parham, 693 So. 2d 409 (Ala. 1997), the Supreme Court
of Alabama rejected this standard for the reasonable reliance standard.
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court has adopted this view or has otherwise excused a party from satisfying the
statutory and common-law detrimental reliance requirement.” 901 So. 2d at 9, n.8.
However, the Court also distinguished Braswell by noting that the defendant in
Braswell had complete control over the payment process, while in Hunt Petroleum,
“the [plaintiff] retained and ultimately exercised its right at any time to audit [the
defendant] and its payments under the lease agreement.” Id.
Like the defendant in Braswell, APL and Monkress had complete control
over the payment of Killough’s share of the profits, and there is nothing to suggest
that Killough retained any authority to audit the payments. In addition, accepting
the allegations in the complaint as true, the court can reasonably infer that Killough
would not have accepted the allegedly inadequate payments if he had known the
true costs associated with the contracts. Consequently, Killough has adequately
pleaded that he relied on the purported misrepresentations or omissions.
3.
Whether Killough has adequately pleaded damages
To show how the alleged fraud damaged him, Killough alleges that he
accepted a smaller share of the profits than he was entitled to under the purported
oral agreement. Doc. 41 at 13, 22, 25. APL asserts that these are the same as the
damages the plaintiffs seek for the alleged breach of contract claim. Doc. 42 at 11.
In general, “[a] mere breach of a contractual provision is not sufficient to support a
charge of fraud.” Brown-Marx Assocs., Ltd. v. Emigrant Sav. Bank, 703 F.2d
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1361, 1370-71 (11th Cir. 1983) (citing McAdory v. Jones, 71 So. 2d 526, 528 (Ala.
1954)). Thus, to establish fraud, a party must show he suffered “damage due to
fraud that is separate from damages that may result from any subsequent
contractual breach.” Dickinson v. Land Developers Construction Co., 882 So. 2d
291, 305 (Ala. 2003) (J. Houston, concurring) (citing Deupree v. Butner, 522 So.
2d 242, 245 (Ala. 1988)) (emphasis in original, quotation omitted). While APL
may ultimately succeed in showing that the fraud and contractual damages are the
same and that the plaintiffs cannot recover damages under both theories, that fact
does not support dismissal of the misrepresentation and suppression claims at this
juncture because the Federal Rules explicitly allow parties to plead inconsistent
claims in the alternative. Fed. R. Civ. P. 8(d) (“A party may set out . . . statements
of a claim [] alternatively or hypothetically . . . [and it] may state as many separate
claims [] as it has, regardless of consistency.”). In addition, allowing Killough to
plead alternate theories is especially justified where, as here, the defendants
specifically deny the existence of the alleged oral contract. See doc. 43 at 3, 24-26.
For all these reasons, the motion to dismiss the fraudulent misrepresentation
and suppression claims is due to be denied.
B.
Whether TCS and Killough plead a valid claim for promissory
fraud
Promissory fraud requires showing that “at the time of the alleged
misrepresentation (that is, the promise), the defendant intended not to do the act or
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acts promised, but intended to deceive the plaintiff.”
Wright v. AmSouth
Bancorporation, 320 F.3d 1198, 1204 (11th Cir. 2003) (quoting Goodyear Tire &
Rubber Co. v. Washington, 719 So. 2d 774, 776 (Ala. 1998)). See also Pinyan v.
Community Bank, 644 So. 2d 919, 923 (Ala. 1994). As this court has noted,
“[p]romissory fraud is difficult to prove [] because ‘the failure to perform a
promised act is not in itself evidence of intent to deceive at the time a promise is
made.’” Tobin v. Auto Club Family Ins. Co., 5:13-cv-01392-AKK, 2013 WL
12138874, *3 (N.D. Ala. Nov. 22, 2013) (quoting Campbell v. Naman’s Catering,
Inc., 842 So. 2d 654, 658 (Ala. 2002)) (alteration in original omitted). Relevant
here, Killough and TCS allege Monkress and APL never intended to transfer the
TCS-related contracts to TCS. Doc. 41 at 26. To support this contention, they
point to the two instances when Monkress discharged Killough and Monkress’
request that Killough not discuss the promised transfer with potential new
employees. Doc. 45 at 13-14. See also doc. 41 at 26. These contentions are
unavailing because, first, the general allegation that Monkress and APL had no
intention of performing at the time the parties reached an agreement is just a
recitation of the elements of the claim, and is not entitled to a presumption of truth.
See, e.g., Iqbal, 556 U.S. at 678-679. Moreover, even viewed in the light most
favorable to the plaintiffs, these three cited instances do not lead to a plausible
inference that the defendants never intended to transfer the contracts when the
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parties entered their alleged agreement. Instead, based on the pleadings, it is just
as plausible that the defendants decided against transferring the contracts to TCS
after they learned how lucrative the contracts proved for the defendants. See Am.
Dental Ass’n v. Cigna Corp., 605 F.3d 1283, 1290 (11th Cir. 2010) (“[C]ourts may
infer from the factual allegations in the complaint ‘obvious alternative
explanations,’ which suggest lawful conduct rather than the unlawful conduct the
plaintiff would ask the court to infer.”) (quoting Iqbal, 556 U.S. at 682).
Consequently, Killough and TCS have failed to allege that the defendants never
intended to perform as purportedly promised, and the promissory fraud claim is
due to be dismissed.
IV.
CONCLUSION AND ORDER
Based on the foregoing, Monkress and APL’s partial motion to dismiss, doc.
42, is GRANTED as to the promissory fraud claim, and that claim is DISMISSED
WITHOUT PREJUDICE.
The motion is DENIED as to the fraudulent
suppression and fraudulent misrepresentation claims.
DONE the 17th day of April, 2019.
_________________________________
ABDUL K. KALLON
UNITED STATES DISTRICT JUDGE
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