Douglas et al v. Renola Equity Fund II, LLC et al

Filing 67

ORDER AND REASONS - the Court GRANTS defendant Patriot Title's motion 26 and dismisses plaintiffs' fraud claim against Patriot Title without prejudice. The Court also GRANTS Renola's Rule 12(e) motion 28 for a more definite statement based on plaintiffs' failure to plead fraud with particularity as required by Rule 9(b). Plaintiffs have 21 days from the date of this order to amend their petition.. Signed by Chief Judge Sarah S. Vance on 3/14/14.(jjs)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
STEVE B. DOUGLAS, ET AL.

CIVIL ACTION

VERSUS

NO: 13-6192

RENOLA EQUITY FUND II, LLC, ET AL.

SECTION: R

ORDER AND REASONS
Defendant Patriot Title, LLC has filed a Rule 12(b)(6)
motion to dismiss the fraud claim brought against it by
plaintiffs Steve B. Douglas; Levi Kelling Arnold, II; Sam Ford,
III; Reginald Louis Bouie; Keisha Waker-Bouie; David Starr; and
Steven Barca.

In the alternative, Patriot Title moves under Rule

12(e) for a more definite statement based on plaintiffs' alleged
failure to plead fraud with particularity pursuant to Rule 9(b).
Defendant Renola Equity Fund II ("Renola") also has filed a Rule
12(e) motion for a more definite statement based on plaintiffs'
alleged non-compliance with Rule 9(b)'s pleading requirement.
The motion relates only to plaintiffs' fraud claim in Count II of
the petition for damages and does not address plaintiffs'
redhibition claim in Count I, in which Renola is also made a
defendant.
The Court concludes that plaintiffs have failed to state a
claim against Patriot Title and dismisses that claim without
prejudice.

Plaintiffs also have failed plead fraud against both

defendants with the requisite particularity.

Plaintiffs have 21

days to amend Count II of their petition to state a fraud claim
with the particularity as required by Rule 9(b).

I. BACKGROUND
Plaintiffs all purchased units at the Park View Condominiums
from Renola.1

They allege that the condominiums "sustained

substantial wind and flood damage due to Hurricane Katrina in
2005, which necessitated the gutting and complete rehabilitation
of the property."2

They further allege that Renola hired a

contractor to "manage the gutting and complete rehabilitation of
the condominiums," which was completed in 2010.3

According to

plaintiffs,
In an effort to promote the condominiums, seller utilized
television and print advertisements highlighting the
renovated property and the accessibility of financing for
individuals who were not qualified for traditional
financing.4
On August 29, 2012, Hurricane Isaac made landfall, allegedly
causing substantial wind and water damage to the condominiums.
Plaintiffs allege that Jeff Castellaw, on behalf of the Parkview
Condominium Association, contacted SERVPRO on or about November
12, 2012 for an assessment of the water damage.

1

R. Doc. 2-2 at 3-5.

2

Id. at 8.

3

Id.

4

Id.
2

Later that week,

SERVPRO allegedly issued a report identifying significant water
damage and mold growth posing a health risk to occupants.5

In

January, St. Bernard Parish allegedly indicated that the
condominiums were deficient with regard to public health and
safety, and plaintiffs allege that they were evicted on February
13, 2013.6
Count II of the petition asserts a claim for fraud against
Renola, Patriot Title, WCS Lending, LLC, and a contractor and
inspector whose identities are unknown.7

In this claim,

plaintiffs allege that Renola "misrepresented the type and amount
of renovations done to the condominiums in an effort to entice
your petitioners . . . to purchase the condominiums."8
Specifically, they allege that Renola "made assertions that the
condominiums were completely gutted, mold remediated, and
renovated in compliance with all city and parish ordinances."9
In the following paragraph, plaintiffs further allege that
Renola
utilized television and print advertisements to communicate
the misrepresentations and entice prospective homebuyers by
highlighting the accessibility of financing for individuals

5

Id. at 8-10.

6

Id. at 10.

7

Id. at 12.

8

Id.

9

Id.
3

who were not qualified for traditional financing.10
Plaintiffs' only allegation against Patriot Title is that
it, along with WCS Lending and the unidentified contractor and
inspector, "knew of the misrepresentations and
participated/colluded in said misrepresentation to obtain an
unjust advantage and for financial gain."11
Based on these allegations, plaintiffs seek rescission of
the home sales, damages, and attorney's fees.12

Patriot Title

has filed a motion to dismiss the fraud claim against it for
failure to state a claim.

In the alternative, it seeks a more

definite statement under Rule 12(e) based on plaintiffs' failure
to plead fraud with the specificity required by Rule 9(b).
Renola also has filed a Rule 12(e) motion for a more definite
statement that complies with Rule 9(b)'s pleading requirements.

II. LEGAL STANDARD
To survive a Rule 12 (b)(6) motion to dismiss, the plaintiff
must plead enough facts to “state a claim to relief that is
plausible on its face.”

Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)).

A claim is facially plausible “when the plaintiff

10

Id.

11

Id. at 13.

12

Id.
4

pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the
misconduct alleged.”

Id.

A court must accept all well-pleaded

facts as true and must draw all reasonable inferences in favor of
the plaintiff.

Lormand v. U.S. Unwired, Inc., 565 F.3d 228, 239

(5th Cir. 2009).
A legally sufficient complaint need not contain detailed
factual allegations, but it must go beyond labels, legal
conclusions, or formulaic recitations of the elements of a cause
of action.

Id.

In other words, the face of the complaint must

contain enough factual matter to raise a reasonable expectation
that discovery will reveal evidence of each element of the
plaintiff’s claim.

Lormand, 565 F.3d at 257.

If there are

insufficient factual allegations to raise a right to relief above
the speculative level, or if it is apparent from the face of the
complaint that there is an insuperable bar to relief, the claim
must be dismissed.

Twombly, 550 U.S. at 555.

Generally, a court ruling on a motion to dismiss may rely on
only the complaint and its proper attachments.

Fin. Acquisition

Partners LP v. Blackwell, 440 F.3d 278, 286 (5th Cir. 2006).

A

court is permitted, however, to rely on “documents incorporated
into the complaint by reference, and matters of which a court may
take judicial notice.”

Tellabs, Inc. v. Makor Issues & Rights,

Ltd., 551 U.S. 308, 322 (2007).

The court may not consider new

5

factual allegations made outside the complaint.

See Fin.

Acquisition Partners LP, 440 F.3d at 289.
Federal Rule of Civil Procedure 9(b) imposes a heightened
pleading requirement for fraud claims.

Under Rule 9(b), a party

alleging fraud or mistake "must state with particularity the
circumstances constituting fraud or mistake."
9(b).

Fed. R. Civ. P.

The required conditions of a person's mind, however, may

be alleged generally.

Id.

What constitutes particularity "will

necessarily differ with the facts of each case," Shushany v.
Allwaste, Inc., 992 F.2d 517, 521 (5th Cir. 1993) (citing Guidry
v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir. 1992)), and
should be determined in light of the purposes the rule is
intended to serve.

In re Ford Motor Co. Bronco II Products Liab.

Litig., MDL-991, 1995 WL 491155, at *6 (E.D. La. Aug. 15, 1995)
(citing Shushany, 992 F.2d at 521).

The purpose of Rule 9(b) is

to "ensur[e] the complaint 'provides defendants with fair notice
of the plaintiffs' claims, protect[ ] defendants from harm to
their reputation and goodwill, reduce[ ] the number of strike
suits, and prevent[ ] plaintiffs from filing baseless claims then
attempting to discover unknown wrongs.'"

United States ex. rel.

Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009) (quoting
Melder v. Morris, 27 F.3d 1097, 1100 (5th Cir. 1994)).

"Perhaps

the most basic consideration in making a judgment as to the
sufficiency of a pleading is the determination of how much detail
6

is necessary to give adequate notice to an adverse party and
enable him to prepare a responsive pleading."

Hernandez v.

CIBA-GEIGY Corp. USA, CIV. A. B-00-82, 2000 WL 33187524, at *5
(S.D. Tex. Oct. 17, 2000) (quoting Wright & Miller, Federal
Practice & Procedure § 1298).
The Fifth Circuit "interprets Rule 9(b) strictly, requiring
the plaintiff 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."

Flaherty & Crumrine Preferred Income Fund, Inc. v.

TXU Corp., 565 F.3d 200, 207 (5th Cir. 2009) (citing Williams v.
WMX Tech., Inc., 112 F.3d 175, 177 (5th Cir. 1997)).

In other

words, “Rule 9(b) requires ‘the who, what, when, where, and how’
to be laid out.”

Benchmark Elecs., Inc. v. J.M. Huber Corp., 343

F.3d 719, 723 (5th Cir. 2003) (quoting Tel–Phonic Servs., Inc. v.
TBS Int'l, Inc., 975 F.2d 1134, 1139 (5th Cir. 1992)).

In cases

concerning “omission of facts, Rule 9(b) typically requires the
claimant to plead the type of facts omitted, the place in which
the omissions should have appeared, and the way in which the
omitted facts made the misrepresentations misleading.”

Carroll

v. Fort St. James Corp., 470 F.3d 1171, 1174 (5th Cir. 2006)
(finding that plaintiffs failed to plead a claim of fraud by
omission with sufficient particularity because they did not
indicate where the omissions should have appeared, when the
7

defendant had a duty to disclose any information, or how he
should have disclosed that information) (quoting United States ex
rel. Riley v. St. Luke's Episcopal Hospital, 355 F.3d 370, 381
(5th Cir. 2004)).
The requirements of Rule 9(b) are “supplemental to the
Supreme Court's recent interpretation of Rule 8(a) requiring
enough facts [taken as true] to state a claim to relief that is
plausible on its face.”

Lentz v. Trinchard, 730 F. Supp. 2d 567,

579 (E.D. La. 2010) (citing Grubbs, 565 F.3d at 185) (quoting
Twombly, 550 U.S. at 570).

Further, a plaintiff may plead fraud

"'upon information and belief'" only when the relevant facts are
peculiarly within the opposing party's knowledge, and the
plaintiff supports his allegations with an adequate factual
basis."

U.S. ex rel. LaCorte v. SmithKline Beecham Clinical

Labs., Inc., CIV. A. 96-1380, 2000 WL 17838 (E.D. La. Jan. 10,
2000); see also U.S. ex rel. Thompson v. Columbia/HCA Healthcare
Corp., 125 F.3d 899, 903 (5th Cir. 1997).

This exception "must

not be mistaken for license to base claims of fraud on
speculation and conclusory allegations."

Thompson, 125 F.3d at

903 (quoting Tuchman v. DSC Communications Corp., 14 F.3d 1061,
1068 (5th Cir. 1994)).
State-law fraud claims, such as the ones alleged by
plaintiffs here, are subject to the pleading requirements of Rule
9(b).

Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 339 (5th
8

Cir. 2008) (explaining that both state-law fraud claims and
federal securities claims are subject to the heightened pleading
requirements of Rule 9(b)) (citing Williams, 112 F.3d at 177 (“We
see no principled reason why the state claims of fraud should
escape the pleading requirements of the federal rules....”)).
Louisiana law defines fraud by a party to a contract as “a
misrepresentation or a suppression of the truth made with the
intention either to obtain an unjust advantage for one party or
to cause a loss or inconvenience to the other.”
art. 1953.
Id.

La. Civ. Code

“Fraud may also result from silence or inaction.”

"An action for fraud against a party to a contract requires:

(1) a misrepresentation, suppression, or omission of true
information; (2) the intent to obtain an unjust advantage or to
cause damage or inconvenience to another; and (3) that the error
induced by the fraudulent act relates to a circumstance that
substantially influenced the victim's consent to the contract."
Petrohawk Properties, L.P. v. Chesapeake Louisiana, L.P., 689
F.3d 380, 388 (5th Cir. 2012) (internal quotation marks omitted)
(quoting Shelton v. Standard/700 Assocs., 798 So. 2d 60, 64 (La.
2001).

To find fraud from silence or suppression of the truth,

there must exist a duty to speak or to disclose information.
Greene v. Gulf Coast Bank, 593 So. 2d 630 (La. 1992).
The elements of a delictual fraud or intentional
misrepresentation claim are: 1) a misrepresentation of a material

9

fact; 2) made with intent to deceive; and 3) causing justifiable
reliance with resultant injury.

Kadlec Medical Center v.

Lakeview Anesthesia Assoc., 527 F.3d 412, 418 (5th Cir. 2008);
see also Gonzalez v. Gonzalez, 20 So. 3d 557, 563 (La. Ct. App.
2009).

As with a claim for contractual fraud, a plaintiff must

show that the defendant had a duty to disclose the withheld
information in order to state a claim for delictual fraud by
silence or inaction.

Kadlec Medical Center, 527 F.3d at 418 (“To

establish a claim for intentional misrepresentation when it is by
silence or inaction, plaintiffs also must show that the defendant
owed a duty to the plaintiff to disclose the information.”).
Accord Chateau Homes by RJM, Inc. v. Aucoin, 97 So. 3d 398, 405
(La. Ct. App. 2012).
Rule 12(e) entitles a party to a more definite statement
when a portion of a pleading to which a responsive pleading is
allowed “is so vague or ambiguous that the party cannot
reasonably prepare a response.”

Fed R. Civ. P. 12(e).

A party

may rely on Rule 12(e) to challenge the sufficiency of a pleading
under Rule 9(b).

Lindsey v. Dyncorp Int'l LLC, CIV.A. H-09-0700,

2009 WL 1704253, at *1 (S.D. Tex. June 17, 2009) (citing 5C
Wright & Miller, Federal Practice and Procedure § 1376, at 330–31
(“Even though Rule 9 itself contains no mechanism for enforcing
its terms, numerous cases make it clear that the common practice
has been to use a motion under Rule

10

12(e) for that purpose.”);

see also Bishop v. Shell Oil Co., CIV.A. 07-2832, 2008 WL 57833,
at *1-2 (E.D. La. Jan. 3, 2008) (granting Rule 12(e) motion based
on failure to comply with Rule 9(b)); Old Time Enterprises, Inc.
v. Int'l Coffee Corp., 862 F.2d 1213, 1217 (5th Cir. 1989)
(affirming district court's order requiring a more definite
statement under Rule 12(e) when plaintiff's fraud claims failed
to comply with Rule 9(b)).

A party who invokes Rule 12(e) based

on non-compliance with Rule 9(b) requests that the plaintiff
replead but does not seek dismissal of the fraud claim.

"When a

party seeks dismissal, rather than a more definite statement, for
failure to plead fraud with particularity, a Rule 12(b)(6) motion
is a proper procedural mechanism."
at *1

See Lindsey, 2009 WL 1704253,

(citing Coates v. Heartland Wireless Commnc'ns, Inc., 55

F. Supp. 2d 628, 633 n. 4 (N.D. Tex. 1999)).

III. DISCUSSION
Plaintiffs do not identify the type of fraud claim they seek
to bring against either defendant.

Because Patriot Title is not

alleged to be a party to the contracts through which plaintiffs
purchased the condominiums from Renola, these claims sound in
tort.

As discussed supra, the elements of a delictual fraud or

intentional misrepresentation claim are: 1) a misrepresentation
of a material fact; 2) made with intent to deceive; and 3)
causing justifiable reliance with resultant injury.
11

Kadlec

Medical Center, 527 F.3d at 418.

The only allegation in the

petition against Patriot Title is that it "knew of [Renola's]
misrepresentations and participated/colluded in said
misrepresentation to obtain an unjust advantage and for financial
gain."

Plaintiffs do not provide any statements allegedly made

by a representative of Patriot Title.

Nor do plaintiffs allege

that they relied any such statements in purchasing the properties
or that any such reliance was justified.
To the extent that plaintiffs suggest that Patriot Title
committed a misrepresentation by omission, their claim fails
because they do not allege facts showing that Patriot Title had a
duty to disclose any information relating to the physical
condition of the properties.

See Kadlec, 527 F.3d at 418-19.

Accordingly, plaintiffs have failed to state a claim for fraud
against Patriot Title, and the claim is dismissed without
prejudice.
Plaintiffs also failed to comply with Rule 9(b) with respect
to Patriot Title.
Rule 9(b).

First, group pleading is impermissible under

"'[A] complaint alleging fraud may not group the

defendants together.'

Plaintiffs must plead specific facts as to

each defendant for each of the Rule 9(b) requirements."

Lang v.

DirecTV, 735 F. Supp. 2d 421, 437 (E.D. La. 2010) (quoting
Ingalls v. Edgewater Private Equity Fund III, L.P., 2005 WL
2647962, at *5 (S.D. Tex. Oct. 17, 2005)).

12

Plaintiff lumps

together Patriot Title, WCS Lending, and the unknown contractor
and inspector in a single allegation of collusion in Renola's
misrepresentation.
Moreover, the petition fails to allege the who, what, when,
where, or how of the circumstances constituting the alleged
fraud.

Again, to the extent that plaintiffs are attempting to

plead fraud by omission, Rule 9(b) requires plaintiffs to plead
the type of facts omitted, the place in which the omissions
should have appeared, and the way in which the omitted facts made
the misrepresentations misleading.

Plaintiffs did none of this.

Cf. Carroll v. Fort James Corp., 470 F.3d 1171, 1174 (5th Cir.
2006) (concluding that plaintiffs ran afoul of Rule 9(b) by
failing to allege facts showing when, if ever, it was incumbent
upon the defendant to disclose the relevant information or how
the defendant should have done so).

Further, the plaintiffs do

not specify a single person at Patriot Title who knew of the
alleged physical condition of the condominiums or, more
importantly, the particulars of what information was known.
Accordingly, when plaintiffs amend the petition, they must do so
in a way that will bring their fraud claim into compliance with
Rule 9(b).
Renola seeks a more definite statement of plaintiffs' fraud
claim under Rule 12(e).

Plaintiffs have not stated a claim for

fraud against Renola with the particularity required by Rule

13

9(b).

First, plaintiffs fail to allege the who, what, when, and

where with sufficient specificity to put Renola on notice of the
precise claims it is being called to defend.

Plaintiffs allege

that Renola "made assertions that the condominiums were
completely gutted, mold remediated, and renovated in compliance
with all city and parish ordinances."

But in describing the

context in which these statements allegedly were made, plaintiffs
state only that Renola "utilized television and print
advertisements to communicate the misrepresentations . . . ."
They do not state when these advertisements appeared in print or
on television, in what publications the print advertisements
appeared, the frequency with which they ran, or what specifically
was said.

Plaintiffs need not list each instance in which the

advertisements appeared, but they must provide at least a minimal
amount of context so that Renola can identify the advertisements
at issue and prepare its defense accordingly.

See, e.g., Ryan v.

Brookdale Int'l Sys., Inc., CIV.A. H-06-01819, 2007 WL 3283655,
at *7 (S.D. Tex. Nov. 6, 2007) ("Without knowing when an
advertisement ran, much less where it was seen or heard, a
defendant may have little ability to identify the particular
advertisement and prepare its defense."); Johnson v. Metabolife
Int'l, Inc., CIV.A.3:01-CV-2082-G, 2002 WL 32494514, at *3-4
(N.D. Tex. Oct. 23, 2002) (dismissing fraud claim under 9(b)
where plaintiff "flatly admit[ted] that she [could not] remember

14

the location of the billboard or the precise date and time the
advertising was on the [television] or radio" and failed to
"allege the specific contents, context, or speaker of these
advertisements.") (internal quotation marks omitted); R & L Inv.
Prop., LLC v. Hamm, 3:10-CV-00864-M, 2011 WL 2462102, at *4 (N.D.
Tex. June 21, 2011) (dismissing claim that defendants "caused
advertisements to be created which represented to the world that
the property had a waste water treatment permit" because
plaintiffs failed to state "who made the advertisement, when, and
where.") (internal quotation marks omitted); Kearns v. Ford Motor
Co., 567 F.3d 1120, 1125-26 (9th Cir. 2009) (dismissing fraud
claim alleging that Ford advertisements led plaintiff to believe
that certain vehicles "were inspected by specially trained
technicians and that the . . . inspections were more rigorous and
therefore more safe" because plaintiff did not "specify what the
television advertisements or other sales material specifically
stated."); In re All Terrain Vehicle Litig., 978 F.2d 1265, at *2
(9th Cir. 1992) (unpublished)(noting that plaintiffs might have
met Rule 9(b)'s requirements by alleging, "for example, such
specifics as the contents of the misrepresentations, the dates
when they were made, the medium in which they appeared, the
extent and frequency of circulation among consumers, . . . and
the circumstances that led the named plaintiffs to purchase" the
product at issue).

15

Second, nowhere does the petition state that any of the
plaintiffs actually saw the allegedly misleading advertisements,
much less that they relied upon the contents of those
advertisements in deciding to purchase the condominiums.

Cf.,

e.g., Terry v. N L Indus., Inc., CIV A 404CV269-P-B, 2007 WL
1484742, at *2 (N.D. Miss. May 17, 2007) (dismissing claim where
"[p]laintiffs fail[ed] to satisfactorily allege how [the] alleged
misstatements . . . induced any action or inaction on the part of
plaintiffs," and "nothing in the Amended Complaint establishe[d]
the necessary link between defendant's alleged misstatements and
actions taken by plaintiffs in reliance thereon."); Kearns, 567
F.3d at 1125-26 (9th Cir. 2009) (dismissing claim under Rule 9(b)
where plaintiff did not specify when he was exposed to the
allegedly misleading advertisements or which ones he found
material).

Because reliance is an element of both contractual

and delictual fraud in Louisiana, plaintiffs have not satisfied
the pleading requirements of Rule 8, much less the higher
standard of Rule 9(b).
For these reasons, the Court concludes that plaintiffs'
fraud allegations against Renola fall short of the pleading
standard articulated in Rule 9(b).

Before Renola will be

required to respond, plaintiffs must amend the petition to state

16

the who, what, when, where, and how of the alleged fraud.13

IV. CONCLUSION
For the foregoing reasons, the Court GRANTS defendant
Patriot Title's motion and dismisses plaintiffs' fraud claim
against Patriot Title without prejudice.

The Court also GRANTS

Renola's Rule 12(e) motion for a more definite statement based on
plaintiffs' failure to plead fraud with particularity as required
by Rule 9(b).

Plaintiffs have 21 days from the date of this

order to amend their petition.

New Orleans, Louisiana, this _______ day of March, 2014.
14th

______________________________
SARAH S. VANCE
UNITED STATES DISTRICT JUDGE

13

The Court does not purport to identify each and every
shortcoming in the petition, as the existence of any single
shortcoming renders it inadequate. "Rather, once this Court
holds that a complaint is insufficiently pled, it is the duty of
the attorneys drafting the complaint to conduct research into
pleading requirements and then convert that research into
practice." U.S. ex rel. Lam v. Tenet Healthcare Corp., 481 F.
Supp. 2d 689, 699 (W.D. Tex. 2007).
17