CV Restoration LLC v. Diversified Shafts Solutions, Inc.

Filing 31

MEMORANDUM. Signed by Judge Ellen L. Hollander on 12/1/2016. (hmls, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
CV RESTORATION, LLC,
Plaintiff,
v.

Civil Action No. ELH-16-2102

DIVERSIFIED SHAFTS
SOLUTIONS, INC.,
Defendant.
MEMORANDUM
CV Restoration, LLC (“CVR”), plaintiff, filed suit against defendant, Diversified Shafts
Solutions, Inc. (“DSS”), on June 14, 2016. ECF 1. CVR alleges breach of contract, unjust
enrichment, and breach of fiduciary duty arising out of two written agreements that plaintiff
alleges the parties executed in August 2009. Id. ¶¶ 26-41. Plaintiff seeks to recover, among
other things, $338,310 and requests an accounting. Id. ¶¶ 41-46.
DSS asserted counterclaims against CVR, alleging, inter alia, breach of contract and
requesting an accounting. ECF 8 ¶¶ 59-65, 76-81. Count 1 of the counterclaim seeks attorneys’
fees. In an “Amended Answer, Defenses, and Counterclaim” filed on September 23, 2016 (ECF
15, “Amended Counterclaim”), DSS also seeks attorneys’ fees. Id. ¶¶ 55-58 (Count 1).
CVR has moved to dismiss Count 1 of the Amended Counterclaim (ECF 21), in which
DSS seeks attorneys’ fees. CVR also filed a memorandum of law in support of its motion to
dismiss.

ECF 21-1 (collectively, the “Motion”).

DSS opposes the Motion.

ECF 24

(“Opposition”). CVR has not replied, and the time for doing so has passed. See Local Rule
105.2(a).
No hearing is required to resolve the Motion. See Local Rule 105.6. For the reasons that
follow, I shall grant the Motion.

I.

Background

I incorporate the factual and procedural history set forth in my Memorandum of
November 10, 2016. ECF 27. I repeat and amplify the facts to the extent relevant and necessary.
CVR is a Maryland limited liability company that “develops, manufactures, markets and
distributes axles and their related components for all-terrain vehicles . . . .” ECF 1 ¶¶ 1, 3. DSS
is a Georgia corporation that oversees the manufacture, marketing, and distribution of axles for
all-terrain vehicles, and their related components. ECF 1 ¶¶ 2, 4; ECF 15 ¶¶ 2, 4.
Plaintiff alleges (ECF 1 ¶¶ 6, 13) that on August 31, 2009, CVR and DSS entered into
two agreements: “Limited Partnership Agreement for sales of ATV Axles” (see ECF 1-2) and
“Partnership Agreement for Monster Axles.” See ECF 1-3 (collectively, the “Agreements”).
According to plaintiff, “[t]he Agreements are substantively identical, and provide that CVR and
DSS are forming a partnership for the manufacture and sale of ATV axles.” ECF 1 ¶ 14.
Plaintiff avers that the gross profit from the “venture” was to be split “equally between” CVR
and DSS. Id. ¶ 15. However, plaintiff asserts that “DSS has continually and systemically
breached the Agreements” by not remitting its share. Id. ¶ 19.
On September 6, 2016, CVR, as counter-defendant, filed a motion to dismiss counts 1, 5,
and 7 of DSS’s counterclaim. ECF 11 at 1 (“First Motion to Dismiss”). In its memorandum in
support of the First Motion to Dismiss, CVR asserted that DSS failed to sufficiently state claims
in its counterclaim for attorneys’ fees (Count 1); fraud (Count 5); and punitive damages (Count
7). ECF 11-1 at 5-10.
Then, on September 23, 2016, DSS responded in opposition to the First Motion to
Dismiss (ECF 16) and submitted its Amended Counterclaim. ECF. DSS stated, in its opposition
to the First Motion to Dismiss: “Upon further review, DSS agrees with Plaintiff’s analysis of

-2-

DSS' fraud and punitive damages claims. In an effort to focus this lawsuit on the remaining
claims, DSS narrowed the scope of issues before the Court.” ECF 16 at 5. Accordingly, DSS
did not assert claims for fraud or punitive damages in its Amended Counterclaim. See ECF 15.
However, DSS argued that Count 1, which seeks attorneys’ fees, should not be dismissed.
ECF 16 at 3-4. Thus, DSS reasserted Count 1 in its Amended Counterclaim, with revisions. See
ECF 15 at ¶¶ 55-58; ECF 15-1 at 10-11 (redline). In light of the Amended Counterclaim, by
Order of September 28, 2016, I denied the First Motion to Dismiss as moot. ECF 19.
Then, on October 7, 2016, CVR filed the Motion, arguing that DSS has failed to state a
claim for attorneys’ fees in the Amended Counterclaim. ECF 21. As noted, DSS filed its
Opposition on October 24, 2016 (ECF 24) and CVR did not reply.
II.

Standard of Review

CVR, as counter-defendant, seeks dismissal of Count 1 of the Amended Counterclaim
filed by DSS as a counter-plaintiff. Pursuant to Fed. R. Civ. P. 12(b)(6), CVR claims that Count
1 fails to state a claim upon which relief can be granted.
A defendant may test the legal sufficiency of a complaint by way of a motion to dismiss
under Rule 12(b)(6). Goines v. Valley Cmty, Servs, Bd., 822 F.3d 159, 165-66 (4th Cir. 2016);
McBurney v. Cuccinelli, 616 F.3d 393, 408 (4th Cir. 2010), aff'd sub nom. McBurney v. Young,
___ U.S. ____, 133 S. Ct. 1709 (2013); Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th
Cir. 1999). A Rule 12(b)(6) motion constitutes an assertion by a defendant that, even if the facts
alleged by a plaintiff are true, the complaint fails as a matter of law “to state a claim upon which
relief can be granted.” Whether a complaint states a claim for relief is assessed by reference to
the pleading requirements of Fed. R. Civ. P. 8(a)(2). It provides that a complaint must contain a
“short and plain statement of the claim showing that the pleader is entitled to relief.” The

-3-

purpose of the rule is to provide the defendants with “fair notice” of the claims and the
“grounds” for entitlement to relief. Bell Atl., Corp. v. Twombly, 550 U.S. 544, 555-56 (2007).
To survive a motion under Fed. R. Civ. P. 12(b)(6), a complaint must contain facts
sufficient to “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570; see
Ashcroft v. Iqbal, 556 U.S. 662, 684 (2009) (“Our decision in Twombly expounded the pleading
standard for ‘all civil actions’ . . . .” (citation omitted)); see also Simmons v. United Mortg. &
Loan Inv., LLC, 634 F.3d 754, 768 (4th Cir. 2011). But, a plaintiff need not include “detailed
factual allegations” in order to satisfy Rule 8(a)(2). Twombly, 550 U.S. at 555. Moreover,
federal pleading rules “do not countenance dismissal of a complaint for imperfect statement of
the legal theory supporting the claim asserted.” Johnson v. City of Shelby, ___ U.S. ____, 135 S.
Ct. 346, 346 (2014) (per curiam).
Nevertheless, the rule demands more than bald accusations or mere speculation.
Twombly, 550 U.S. at 555; see Painter's Mill Grille, LLC v. Brown, 716 F.3d 342, 350 (4th Cir.
2013). If a complaint provides no more than “labels and conclusions” or “a formulaic recitation
of the elements of a cause of action,” it is insufficient. Twombly, 550 U.S. at 555. Rather, to
satisfy the minimal requirements of Rule 8(a)(2), the complaint must set forth “enough factual
matter (taken as true) to suggest” a cognizable cause of action, “even if . . . [the] actual proof of
those facts is improbable and . . . recovery is very remote and unlikely.” Twombly, 550 U.S. at
556 (internal quotations omitted).
In reviewing a Rule 12(b)(6) motion, a court “‘must accept as true all of the factual
allegations contained in the complaint’” and must “‘draw all reasonable inferences [from those
facts] in favor of the plaintiff.’” E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d
435, 440 (4th Cir. 2011) (citations omitted); see Houck v. Substitute Tr. Servs., Inc., 791 F.3d

-4-

473, 484 (4th Cir. 2015); Kendall v. Balcerzak, 650 F.3d 515, 522 (4th Cir. 2011), cert. denied,
___ U.S. ____, 132 S. Ct. 402 (2011); Monroe v. City of Charlottesville, 579 F.3d 380, 385-86
(4th Cir. 2009), cert. denied, 559 U.S. 992 (2010). But, a court is not required to accept legal
conclusions drawn from the facts. See Papasan v. Allain, 478 U.S. 265, 286 (1986). “A court
decides whether [the pleading] standard is met by separating the legal conclusions from the
factual allegations, assuming the truth of only the factual allegations, and then determining
whether those allegations allow the court to reasonably infer” that the plaintiff is entitled to the
legal remedy sought. A Society Without a Name v. Virginia, 655 F.3d 342, 346 (4th. Cir. 2011),
cert. denied, ___ U.S. ____, 132 S. Ct. 1960 (2012).
III.

Discussion

“In the United States, the prevailing litigant is ordinarily not entitled to collect a
reasonable attorneys' fee from the loser.” Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421
U.S. 240, 247 (1975). Under the so called “American Rule,” “a prevailing party is not awarded
attorney’s fees ‘unless (1) the parties to a contract have an agreement to that effect, (2) there is a
statute that allows the imposition of such fees, (3) the wrongful conduct of a defendant forces a
plaintiff into litigation with a third party, or (4) a plaintiff is forced to defend against a malicious
prosecution.’” Nova Research, Inc. v. Penske Truck Leasing Co., 405 Md. 435, 445, 952 A.2d
275, 281 (2008) (quoting Thomas v. Gladstone, 386 Md. 693, 699, 874 A.2d 434, 437 (2005)).
Both Maryland and Georgia follow the “American Rule.” See McCabe v. Daimler Ag,
No. 1:12-CV-2494-MHC, 2015 WL 11199196, at *6 (N.D. Ga. Aug. 19, 2015) (citing Alford v.
Citizens & S. Nat’l Bank, 226 S.E. 2d 905, 908 (1976)) (“With regard to the award of attorneys'
fees, Georgia courts follow the American rule which provides that each party is responsible for
paying its own attorneys' fees, unless specific authority granted by statute or contract allows the

-5-

assessment of those fees against the other party.”); Nova Research, Inc., supra, 405 Md. at 445,
952 A.2d at 281.
CVR contends that DSS has failed to state a claim upon which relief can be granted as to
Count 1 of the Amended Counterclaim. ECF 21. The parties agree that because the case arises
under the Court’s diversity jurisdiction, 28 U.S.C. § 1332, the Court must look to the applicable
state law. ECF 21-1 at 4; ECF 24 at 2; see, e.g., Erie R.R. Co. v. Tompkins, 304 U.S. 64, 77
(1938); Kerr v. Marshall Univ. Bd. of Governors, 824 F.3d 62, 74 (4th Cir. 2016); Anand v.
Ocwen Loan Servicing, LLC, 754 F.3d 195, 198 (4th Cir. 2014). The Court has not yet made a
determination as to whether Georgia or Maryland law will apply, and need not do so here.1 In
this case, DSS does not rely on a contract provision or a statute that provides for attorney’s fees
to the prevailing party. Rather, it argues bad faith on the part of CVR.
At this juncture, dismissal of Count 1 is appropriate under both Maryland and Georgia
law. ECF 21-1 at 4-8.
A. Georgia Law
The parties appear to agree that the applicable Georgia statute governing attorneys’ fees
is § 13–6–11 of the Official Code of Georgia Annotated (the “Georgia Law” or “OCGA § 13–6–
11”). ECF 21-1 at 7; ECF 24 at 2. OCGA § 13–6–11 provides:
The expenses of litigation generally shall not be allowed as a part of the damages;
but where the plaintiff has specially pleaded and has made prayer therefor and
where the defendant has acted in bad faith, has been stubbornly litigious, or has
caused the plaintiff unnecessary trouble and expense, the jury may allow them.
According to the Supreme Court of Georgia, “‘. . . § 13–6–11 does not create an
independent cause of action. That statute merely establishes the circumstances in which a
1

In its Opposition, DSS anticipated that my decision on the Motion to Transfer Venue
(ECF 13) would decide the choice of law question. ECF 24 at 2. I have since ruled on the
Motion to Transfer Venue, without deciding that question. See ECF 27 at 13-15.
-6-

plaintiff may recover the expenses of litigation as an additional element of his damages.’”
Georgia Dep't of Corr. v. Couch, 759 S.E. 2d 804, 810 (Ga. 2014) (quoting Dep’t of Transp. v.
Fru-Con Constr. Corp., 426 S.E. 2d 905, 909 (Ga. Ct. App. 1992)) (alteration added). Thus, as
the Supreme Court of Georgia noted, “an award under OCGA § 13–6–11 must be based on
‘conduct arising from the transaction underlying the cause of action being litigated, not conduct
during the course of the litigation itself.’” Couch, 759 S.E. 2d at 810 (quoting David G. Brown,
P.E., Inc. v. Kent, 561 S.E. 2d 89, 90 (Ga. 2002)); see also, e.g., Candy Craft Creations, LLC v.
Gartner, No. 2:12-CV-91, 2015 WL 6391202, at *8 (S.D. Ga. Oct. 22, 2015) (“Georgia courts
have repeatedly held that, when contemplating . . . attorneys' fees claims under O.G.G.A. § 13–
6–11, the jury should not consider conduct during the litigation itself.”).
Notably, the “‘bad faith referred to in the [Georgia Law] is not bad faith in refusing to
pay but bad faith in the transaction out of which the cause of action arises.’” Rosen v. Protective
Life Ins. Co., 817 F. Supp. 2d 1357, 1383–84 (N.D. Ga. 2011) (quoting Trickett v. Advanced
Neuromodulation Sys., Inc., 542 F. Supp. 2d 1338, 1355 (S.D. Ga. 2008)), aff'd sub nom. Rosen
v. Am. Guarantee & Liab. Ins. Co., 503 F. App'x 768 (11th Cir. 2013); see also Beacon Indus.,
Inc. v. Vanderbunt Concrete, Ltd., 323 S.E. 2d 871, 874 (Ga. Ct. App. 1984) (“The mere failure
of a defendant to pay a claim does not constitute bad faith.”). Furthermore, “statutory recovery
for stubborn litigiousness or causing unnecessary trouble and expense is authorized if there exists
no bona fide controversy or dispute regarding liability for the underlying cause of action.” David
G. Brown, P.E., Inc., 561 S.E. 2d at 90–91.
B. Maryland Law
In Maryland, the award of attorneys’ fees is governed by Md. Rule 1-341(a). It provides,
id. (emphasis added):

-7-

In any civil action, if the court finds that the conduct of any party in maintaining
or defending any proceeding was in bad faith or without substantial justification,
the court, on motion by an adverse party, may require the offending party or the
attorney advising the conduct or both of them to pay to the adverse party the costs
of the proceeding and the reasonable expenses, including reasonable attorneys'
fees, incurred by the adverse party in opposing it.
The Maryland Court of Appeals has said: “‘In bad faith’ means vexatiously, for the
purpose of harassment or unreasonable delay, or for other improper reasons.” Inlet Assocs v.
Harrison Inn Inlet, Inc., 324 Md. 254, 268, 596 A.2d 1049, 1056 (1991); accord State v.
Braverman, 228 Md. App. 239, 262, 137 A.3d 377, 390, cert. denied sub nom. Goldberg v. State,
450 Md. 115, 146 A.3d 469 (2016). “A party lacks substantial justification to maintain or defend
a proceeding when it has no ‘reasonable basis for believing that the claims would generate an
issue of fact for the fact finder.’” Braverman, 228 Md. App. at 260, 137 A.3d at 389 (quoting
Inlet Assocs., 324 Md. at 268, 596 A.2d at 1056 (1991)).
C. Analysis
CVR argues that DSS has not stated a plausible claim for relief under OCGA § 13–6–11
or Md. Rule 1-341(a). ECF 21-1 at 6-8. According to CVR, the facts alleged by DSS in its
Amended Counterclaim “establish only that (1) CVR failed to pay money it owed to DSS and (2)
CVR and DSS disagree over whether or not the money is in fact owed.” Id. at 7. CVR adds, id.
at 8: “DSS's counterclaim alleges, at most, a mere failure to pay.”
According to CVR, that the allegations in the Amended Counterclaim “establish (again,
at best) a dispute between two commercial parties over the enforceability of two contracts.” ECF
21-1 at 6. Moreover, CVR asserts: “DSS has offered no facts from which this Court could infer
that CVR's position is patently frivolous and would amount to a serious abuse of judicial
process.” Id. (internal quotations omitted). CVR adds, id. at 7: “DSS has not offered a single
fact to support its assertion that this is anything other than an ordinary commercial dispute.”

-8-

Thus, CVR posits: “DSS would have this Court infer bad faith from an ordinary contract dispute.
The Court should decline DSS's invitation; if bad faith is present here, it exists in every
commercial contract dispute.” Id. at 6.
DSS counters that “the factual allegations in DSS’ counterclaim sufficiently plead that
CVR acted in bad faith in the underlying transaction giving rise to DSS’ counterclaims.” ECF
24 at 3. According to DSS, it has alleged, in its Amended Counterclaim, that “despite attempts
to resolve the issues related to the transaction, CVR has refused to remit payment for the
products it took possession of or to return the products to DSS.” Id. DSS contends, id.: “The
counterclaim alleges that in bad faith, CVR requested that DSS design and produce specific
axles, and only after DSS had done so, CVR refused to pay for them.” Thus, DSS argues, id. at
3-4: “Taken with the allegation of bad faith in Paragraph 58, these factual allegations sufficiently
plead a claim for attorney’s fees . . . .”2
In my view, DSS has failed to allege facts sufficient to state a plausible claim for
attorneys’ fees based on bad faith or lack of substantial justification for the suit. As stated, to
find bad faith a plaintiff has to show more than a mere failure to pay money due under a contract.
See Rosen, 817 F. Supp. 2d at 1383–84. As CVR notes, the most that can be gleaned from the
Amended Counterclaim is that DSS claims that CVR owes money to DSS and that CVR disputes
that claim. ECF 15 at ¶¶ 51-54.
DSS’s bald assertion that “[p]laintiff has acted in bad faith” (id. ¶ 58) is not sufficient to
satisfy the pleading requirements of Rule 12(b)(6). As stated, to satisfy Rule 12(b)(6), the
complaint “requires more than labels and conclusions . . . .” Twombly, 550 U.S. at 555.
2

DSS does not actually contest CVR’s Motion under Maryland law. Instead, DSS states,
ECF 24 at 4: “If the Court decides to deny the Motion to Transfer, Count 1 is moot, as Maryland
does not require a party to specially plead and submit a prayer for attorney’s fees in order to seek
them.”

-9-

In light of the foregoing, DSS has not stated a plausible claim for attorneys’ fees under
OCGA § 13–6–11 or Md. Rule 1-341(a).
IV.

Conclusion

For the foregoing reasons, I shall GRANT the Motion to Dismiss (ECF 21) Count 1 of
the Amended Counterclaim (ECF 15 at ¶¶ 55-58), without prejudice.3 An Order consistent with
this Memorandum follows.

Date: December 1, 2016

3

/s/
Ellen L. Hollander
United States District Judge

This Memorandum obviously does not address prospective conduct.

-10-