Operaciones Tecnicas Marinas S.A.S. v. Diversified Marine Services, LLC et al

Filing 29

ORDER & REASONS granting 22 Motion to Dismiss fraud claim for Failure to State a Claim upon which relief can be granted. Signed by Judge Martin L.C. Feldman on 2/20/2013. (caa, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
OPERACIONES TECNICAS MARINAS S.A.S.

CIVIL ACTION

v.

NO. 12-1979

DIVERSIFIED MARINE SERVICES, LLC ET AL.

SECTION F

ORDER AND REASONS
Before the Court is Diversified Marine Services, LLC’s
motion to dismiss plaintiff’s fraud claim for failure to state a
claim upon which relief can be granted.

For the reasons that

follow, the motion is GRANTED.
Background
This case arises from a failed maritime voyage.
Operaciones Tenicas Marinas (“OTM”) is a marine operating
company based in Cartagena, Colombia.

OTM purchased two sister

vessels, M/V MARY TIDE and M/V THOMAS TIDE, which had been out of
service for several years.

In November 2010, OTM entered into a

contract with Diversified Marine Services, LCC, to drydock the
vessels, evaluate their condition, and determine the work
necessary to make the vessels seaworthy.
From November 2010 to June 2011, Diversified allegedly
communicated on a regular basis with OTM to relay recommendations
based on its inspection of the vessels, obtain approval for
maintenance and repair, and invoice and collect funds from OTM
1

for work performed.1

According to the plaintiff’s complaint, OTM

relied on the representations of Diversified and approved a
schedule of work, which Diversified supposedly performed and told
OTM it had performed.

OTM paid and satisfied all invoices, and

on May 17, 2011, based on Diversified’s assurances that the
vessels were nearly ready for use, OTM entered into a bareboat
charter agreement with Serviport S.A.2

According to the terms of

the charter agreement, OTM was to deliver the vessels to
Serviport on July 15, 2011.

OTM contends it informed Diversified

of the charter agreement and Diversified told OTM that the
vessels would be fit for the voyage to Colombia in sufficient
time to commence the charter.
On or about June 20, 2011, OTM paid Diversified the
outstanding balance for the vessel repairs.

In total, OTM paid

$344,769.15 in repairs purportedly performed to both vessels.
OTM asserts that it relied upon the representations of
Diversified that the following repairs had been made:
(1) the main engines of both vessels had been inspected;
(2) the center and starboard main engines of the M/V MARY

1

Diversified allegedly identified twenty-four repairs to be made
to the M/V MARY TIDE, and eighteen repairs for M/V THOMAS TIDE.
2

The charter agreement provided for a six-month term, with an
option to extend the charter for another six months. The initial
six month charter hire was $381,600.
2

TIDE had undergone full out-of-frame overhauls;3
(3) the center main engine of the M/V THOMAS TIDE had
undergone an in-frame overhaul;4
(4) the gears transmitting the power between the main engine
to the shaft of both vessels has been inspected and
repaired;
(5) the rudder stocks and steering systems of both vessels
has been inspected and repaired;
(6) the hull integrity of both vessels has been inspected
for water leakage and possible compromised areas, and repair
for laying the same had been recommended and performed;
(7) the necessary navigational equipment on both vessels had
been inspected, tested, and repaired or replaced
accordingly;
(8) the air-conditioning systems, along with other various
systems, had been inspected and repaired as new.
On June 23, 2011, both vessels departed the Diversified
shipyard for Cartagena, Colombia.

The vessels soon experienced

severe mechanical and electrical problems, and became adrift
approximately 340 miles from Cartagena, Colombia.

As a result,

both vessels had to be towed the last leg of the voyage, first by
the Colombian Navy and later by a commercial assist tug hired by
OTM.
The vessels were surveyed upon arrival, and, OTM contends,

3

This requires unbolting and completely removing the engines
from the vessel. Once removed, the engines are broken down to
individual component pieces and cleaned. All mechanical systems
and wear items are then replaced with new parts, and the engines
are then returned to the vessel.
4

This involves replacing the major wear items of the engine
while the engine remains mounted to the frame of the vessel.
3

several electrical and mechanical problems were discovered.

OTM

also claims that the engines for both vessels were disassembled
for inspection by an engine repair company, Stewart & Stevenson.
The results of the inspection concluded that the center main
engine of M/V THOMAS TIDE and the starboard main engine of M/V
MARY TIDE had not been overhauled as Diversified agreed.

Because

the vessels would be unavailable for delivery to Serviport on
July 15, 2011, OTM was in breach of the OTM-Serviport bareboat
charter agreement, which was ultimately terminated.
OTM sued Diversified in this Court on July 31, 2012,
alleging claims for breach of contract; negligent
misrepresentation; intentional misrepresentation; negligence,
gross negligence, and recklessness; breach of warranty of
workmanlike performance; and fraud.

OTM seeks damages arising

from towage expenses, the cancellation of the charter agreement,
survey expenses, additional repair costs, and other claimed
damages associated with the work performed by Diversified.
also asserts a claim for punitive damages.

OTM

On November 27, 2012,

Diversified moved under Rule 12(b)(6) to dismiss plaintiff’s
claims for gross negligence, recklessness, fraud, and punitive
damages.

On December 19, 2012, the Court granted Diversified’s

motion in part as to plaintiff’s fraud claim, and denied the
motion in part as to plaintiff’s claims for gross negligence,
recklessness, and punitive damages.

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The Court further granted

the plaintiff leave to amend its pleading as to the fraud claim,
and the plaintiff filed its second amended complaint on January
10, 2013.

Diversified now moves for dismissal under Rule

12(b)(6), alleging that plaintiff’s claim for fraud still fails
to state a cause of action for which relief can be granted.
I. Legal Standard
Rule 12(b)(6) of the Federal Rules of Civil Procedure allows
a party to move for dismissal of a complaint for failure to state
a claim upon which relief can be granted.

Such a motion is

rarely granted because it is viewed with disfavor.

See Lowrey v.

Tex. A & M Univ. Sys., 117 F.3d 242, 247 (5th Cir. 1997) (quoting
Kaiser Aluminum & Chem. Sales, Inc. v. Avondale Shipyards, Inc.,
677 F.2d 1045, 1050 (5th Cir. 1982)).

In considering a Rule

12(b)(6) motion, the Court “accepts ‘all well-pleaded facts as
true, viewing them in the light most favorable to the
plaintiff.’”

See Martin K. Eby Constr. Co. v. Dall. Area Rapid

Transit, 369 F.3d 464 (5th Cir. 2004) (quoting Jones v.
Greninger, 188 F.3d 322, 324 (5th Cir. 1999)).

But, in deciding

whether dismissal is warranted, the Court will not accept
conclusory allegations in the complaint as true.
F.2d at 1050.

Kaiser, 677

Indeed, the Court must first identify allegations

that are conclusory and, thus, not entitled to the assumption of
truth.

Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009).

A

corollary: legal conclusions “must be supported by factual

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allegations.” Id. at 678.

Assuming the veracity of the well-

pleaded factual allegations, the Court must then determine
“whether they plausibly give rise to an entitlement to relief.”
Id. at 679.
“‘To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to state a claim to
relief that is plausible on its face.’” Gonzalez v. Kay, 577 F.3d
600, 603 (5th Cir. 2009)(quoting Iqbal, 556 U.S. at 678)(internal
quotation marks omitted).

“Factual allegations must be enough to

raise a right to relief above the speculative level, on the
assumption that all the allegations in the complaint are true
(even if doubtful in fact).”

Bell Atl. Corp. v. Twombly, 550

U.S. 544, 555 (2007) (citations and footnote omitted). “A claim
has facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”

Iqbal, 556 U.S.

at 678 (“The plausibility standard is not akin to a ‘probability
requirement,’ but it asks for more than a sheer possibility that
a defendant has acted unlawfully.”).

This is a “context-specific

task that requires the reviewing court to draw on its judicial
experience and common sense.” Id. at 679.

“Where a complaint

pleads facts that are merely consistent with a defendant’s
liability, it stops short of the line between possibility and
plausibility of entitlement to relief.”

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Id. at 678 (internal

quotations omitted) (citing Twombly, 550 U.S. at 557).

“[A]

plaintiff’s obligation to provide the ‘grounds’ of his
‘entitle[ment] to relief’”, thus, “requires more than labels and
conclusions, and a formulaic recitation of the elements of a
cause of action will not do.”

Twombly, 550 U.S. at 555

(alteration in original) (citation omitted).
In deciding a motion to dismiss, the Court may consider
documents that are essentially “part of the pleadings.”

That is,

any documents attached to or incorporated in the plaintiff’s
complaint that are central to the plaintiff’s claim for relief.
Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th
Cir. 2004) (citing Collins v. Morgan Stanley Dean Witter, 224
F.3d 496, 498-99 (5th Cir. 2000)).

Also, the Court is permitted

to consider matters of public record and other matters subject to
judicial notice without converting a motion to dismiss into one
for summary judgment.

See United States ex rel. Willard v.

Humana Health Plan of Tex. Inc.,

336 F.3d 375, 379 (5th Cir.

2003).
II. Discussion
Defendant contends that plaintiff’s fraud claim fails to
state a claim upon which relief can be granted, because the
complaint still fails to allege facts that support an inference
of fraudulent intent.

The Court agrees.

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A.
It is settled within the Fifth Circuit that a federal court
sitting in admiralty applies the common law of fraud.

See Black

Gold Marine, Inc. v. Jackson Marine Co., 759 F.2d 466 (5th Cir.
1985); Cargill, Inc. v. Degesch Am., Inc., 875 F. Supp. 2d 667,
674 (E.D. La. 2012); Elmwood Dry Dock & Repair v. H&A Trading
Co., No. 93-2156, 1997 WL 781298 (E.D. La. Dec. 16, 1997).
Stating a fraud claim requires a plaintiff to allege:
1.

a false representation—usually of fact—made by the
defendant;

2.

knowledge or belief on the part of the defendant
that
the
representation
is
false,
or
an
insufficient basis to make the representation;

3.

an intention to induce the plaintiff to act or
refrain
from
acting
in
reliance
on
the
information;

4.

justifiable reliance by the defendant; and

5.

damage to
reliance.

the

plaintiff

Cargill, 875 F. Supp. 2d at 674.

resulting

from

the

Plaintiff’s allegations of

fraud implicate the heightened pleading requirements of Federal
Rule of Civil Procedure 9(b), which provides 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).

explained:

8

The Fifth Circuit has

[The Fifth Circuit] interprets Rule 9(b) strictly,
requiring a plaintiff [who pleads] fraud to specify the
statements contended to be fraudulent, identify the
speaker, state when and where the statements were made,
and explain why the statements were fraudulent.
Put
simply, Rule 9(b) requires the complaint to set forth the
who, what, when, where, and how of the events at issue.
Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 339 (5th Cir.
2008) (citations and internal quotation marks omitted); see also
Cargill, 875 F. Supp. 2d at 675.

The second sentence of Rule

9(b) “relaxes the particularity requirement for conditions of the
mind such as scienter: Malice, intent, knowledge, and other
conditions of the mind may be alleged generally.”
F.3d at 339 (internal quotation marks omitted).

Dorsey, 540

But, while Rule

9(b) “expressly allows scienter to be averred generally,”
conclusory allegations that defendant possesses fraudulent intent
will not satisfy Rule 9(b).

Id. (internal quotation marks

omitted). Rather, the plaintiff must “allege specific facts
supporting an inference of fraud.”

Id.

Fraudulent intent can be

inferred by alleging facts that show the defendant’s motive to
commit the alleged fraud, or that identify circumstances that
indicate conscious behavior on the part of the defendant.

Id.

B.
Regarding plaintiff’s fraud claim, this Court noted in its
December 19, 2012 Order and Reasons:
Strikingly absent from plaintiff’s complaint are
factual allegations that invite an inference of
fraudulent intent. At best, the complaint contains one
allegation of intent:
“Diversified’s representations
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that the vessels were repaired were made with the
intention that OTM pay for the repairs purportedly made
to the vessels and for OTM to undertake the voyage to
Colombia.”
Rec. Doc. 14 at 11.

The Court went on to explain that

“‘[p]laintiffs do not allege motive by making generic allegations
that the defendant had a financial interest in carrying out the
alleged fraud.’”

Rec. Doc. 14 at 11 (quoting McNamara v. Bre-X

Minerals Ltd., 57 F. Supp. 2d 396, 405 (E.D. Tex. 1999)).

The

Court further granted the plaintiff leave to amend its complaint
in accordance with the December 19, 2012 Order and Reasons.
Plaintiff’s second amended complaint, with the exception of
two paragraphs, basically reurges the same facts as the
plaintiff’s previous papers.

The two notable changes, found in

paragraphs 71 and 72, state:
These facts suggest Diversified anticipated the MARY
TIDE and THOMAS TIDE would be in, or well on their way
to, Colombia by the time Diversified’s failure to perform
the engine overhauls and rebuilds OTM contracted and paid
for, and other defects in Diversified’s workmanship, were
discovered such that OTM’s recourse would be limited or
somehow restricted by the distance between the vessels
and Diversified.
. . . .
Diversified’s representations concerning the repairs
to the MARY TIDE and THOMAS TIDE were made with the
intention to induce OTM into believing the vessels were
fit for service as typical offshore crewboats and to
accept delivery of the MARY TIDE and THOMAS TIDE.
Further, Diversified’s representations concerning the
vessel repairs were made with the intent to defraud OTM,
knowledge of the falsity of those representations and/or
a reckless disregard for the truth. . . .

10

Rec. Doc. 21 at 4-5.

Plaintiff contends that fraudulent intent

can be inferred here because (1) the complaint contains factual
allegations that indicate conscious behavior on the part of
Diversified, (2) the complaint also shows Diversified’s motive to
commit the alleged fraud, and (3) Diversified’s breach of
contract is sufficient to show fraudulent intent.
First, plaintiff asserts that the factual allegations in its
second amended complaint show Diversified’s conscious behavior to
defraud OTM.

Specifically, plaintiff contends that Diversified

knew the repairs were not made when Diversified represented that
the vessels were fit for service.

Further, plaintiff asserts

that this Court has already held that these factual allegations
are sufficient to state a claim for gross negligence and
recklessness, for which the standard is wanton, willful, or
outrageous conduct.

See Rec. Doc. 14 at 7-9.

The Court notes,

however, that in its earlier Order and Reasons, it held that “OTM
states a gross negligence and recklessness claim that is
plausible, albeit barely, on its face.”

Rec. Doc. 14 at 8.

Importantly, the standard for evaluating the sufficiency of a
pleading for a claim of gross negligence and recklessness is Rule
8, whereas a claim of fraud involves Rule 9's special heightened
pleading standard.

See Cargill, 275 F. Supp. 2d at 676 (noting

the difference between evaluating a case under the Rule 8
standard and the Rule 9(b) standard).

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The Court cannot find, on

the pleadings before it, that the plaintiff has alleged facts to
indicate that Diversified consciously behaved in a manner to
induce plaintiff’s conduct based on alleged false statements.
There is a vast distinction between conscious disregard for the
safety of others, and the conscious intention or bad motive to
induce the plaintiff to behave in a certain way.

Merely stating

that Diversified’s representations concerning the repairs were
made “with the intention to induce OTM into believing the vessels
were fit for service . . . and to accept delivery” and that
“Diversified’s representations concerning the vessel repairs were
made with the intent to defraud OTM” is not enough to satisfy
Rule 9(b).

The Fifth Circuit has expressly held that

“‘[a]lthough Rule 9(b) expressly allows scienter to be ‘averred
generally’, simple allegations that defendants possess fraudulent
intent will not satisfy Rule 9(b).’” Dorsey, 540 F.3d at 339
(quoting Melder v. Morris, 27 F.3d 1097, 1102 (5th Cir. 1994)).
Second, plaintiff asserts that its second amended complaint
contains factual allegations sufficient to show Diversified’s
motive.

Plaintiff contends that Diversified had the motive and

opportunity to deceive because “it is easier to deceive when the
object of the deception is remote.”

Therefore, plaintiff’s

argument goes, because Diversified knew the vessels would be well
on their way to Colombia before the faulty repairs were
discovered, and plaintiff’s recourse would be limited because of

12

the distance between the vessels and Diversified, Diversified had
the requisite fraudulent intent.
Plaintiff indicates no motive for Diversified to provide
false statements about its repairs other than the tenuous and
conclusory argument that Diversified had motive because it knew
the vessels would be mid-voyage before the faulty repairs were
discovered.

The only other motive that can be inferred from

plaintiff’s second amended complaint is that of financial
incentive, which, as this Court stated before, is insufficient
for a claim of fraud.

See McNamara, 57 F. Supp. 2d at 405

(“Plaintiffs do not sufficiently allege motive by making generic
allegations that the defendant had a financial interest in
carrying out the alleged fraud.”).

The Court cannot infer an

illicit motivation without facts to support such an inference.
The allegations that the vessels broke down and the surveyors
believe work was not performed as requested may certainly lend
credence to a breach of contract claim, or claims of negligence,
but, as currently stated in plaintiff’s complaint, they do not
serve as a sufficient basis for fraud.
Third, plaintiff contends that Diversified’s breach of
contract serves as evidence of fraudulent intent.

The Fifth

Circuit has stated:
Generally, “there is no inference of fraudulent
intent not to perform from the mere fact that a promise
made is subsequently not performed.” . . . However, where
the nonperformance is coupled with other probative
13

factors, such as “where only a short time elapses between
the making of the promise and the refusal to perform it,
and there is no change in the circumstances,” an intent
not to perform when the promise was made may, in
appropriate circumstances, be properly inferred.
United States v. Shah, 44 F.3d 285, 293 n.14 (5th Cir. 1995)
(citations omitted) (quoting 37 AM. JUR. 2d Fraud and Deceit §§
68, 478 (footnotes omitted)).

Plaintiff contends that

Diversified allegedly began to perform repairs in November 2010,
and misrepresented the repairs had been performed in June 2011.
Further, plaintiff asserts that the distance between the parties
dictated that the plaintiff rely on Diversified to identify and
perform the necessary repairs, or report to plaintiff that it was
unable to do so.

Therefore, plaintiff submits that Diversified’s

misrepresentations in such close proximity to undertaking
performance suggest that Diversified never intended to perform
the repairs.

The Court cannot agree that approximately seven

months is so short a time frame to negate the general rule that
“there is no inference of fraudulent intent not to perform from
the mere fact that a promise made is subsequently not performed.”
Id.
Accordingly, the defendant’s motion to dismiss plaintiff’s
fraud claim is GRANTED.

Plaintiff’s other claims remain viable.

New Orleans, Louisiana, February 20, 2013
__________________________________
MARTIN L. C. FELDMAN
UNITED STATES DISTRICT JUDGE

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