M Street Investments, Inc. v. Zurich American Insurance Company et al

Filing 173

ORDER granting 11 Motion to Dismiss Plaintiff's Fraud Claims. Further Ordered tha Plaintiff is granted leave to amend by April 26, 2014. Signed by Honorable David C. Bramlette, III on 3/28/2014 (ECW)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF MISSISSIPPI
NORTHERN DIVISION
M STREET INVESTMENTS, INC.
VS.

PLAINTIFF
CIVIL ACTION NO. 3:13-cv-878(DCB)(MTP)

ZURICH AMERICAN INSURANCE COMPANY,
BELFOR USA GROUP, INC., and
GARY WILBORN a/k/a GARY WILBURN

DEFENDANTS

MEMORANDUM OPINION AND ORDER
This cause is before the Court on defendant Belfor USA Group,
Inc.

(“Belfor”)’s

motion

(docket entry 11).

to

dismiss

plaintiff’s

fraud

claims

Having carefully considered the motion and

response, the memoranda and the applicable law, and being fully
advised in the premises, the Court finds as follows:
In August of 2012, the Grand Station Hotel in Vicksburg,
Mississippi

(“Hotel”),

Hurricane Isaac.

suffered

water

damage

as

a

result

of

The Hotel is owned by Great Southern Investment

Group, Inc., which is a wholly owned subsidiary of M Street
Investments, Inc. (“M Street”). M Street had obtained an insurance
policy on the Hotel in March of 2012, which was in effect at the
time of the property damage.
Belfor specializes in disaster remediation and restoration,
and provides property recovery services throughout the United
States.

On September 5, 2012, Belfor was hired pursuant to an

Authorization for Repairs & Payment agreement to perform mitigation
services on the Hotel.

Belfor did remediation work on the Hotel,

and subsequently submitted an invoice for its services to M
Street’s insurer, Zurich American Insurance Company (“Zurich”).
According to Belfor’s motion, Zurich examined Belfor’s invoice and
approved over 98% of Belfor's charges.

On March 12, 2013, Belfor

invoiced M Street in the amount of $511,388.34 for the mitigation
services performed at the Hotel.
Belfor further alleges that M Street filed the present action
seeking to avoid its obligations to Belfor, and that M Street
refuses to pay Belfor’s invoice even though M Street has received
payment from Zurich under M Street’s insurance policy for the work
performed

by

Belfor.

M

Street’s

Complaint

asserts

multiple

theories of liability against Belfor, including breach of contract,
negligence, civil conspiracy, and fraud.
Belfor contends that M Street’s fraud claims are insufficient
in that M Street cannot identify a fraudulent statement nor a
representative of Belfor who made a fraudulent statement.

Belfor

further alleges that M Street’s fraud claims do not comply with the
heightened pleading requirements of Federal Rule of Civil Procedure
9(b).

Belfor’s motion seeking dismissal of the fraud claims is

governed by Federal Rule of Civil Procedure 12(b)(6).
In considering a motion under Rule 12(b)(6), the “court
accepts ‘all well-pleaded facts as true, viewing them in the light
most favorable to the [counter-]plaintiff.’” Martin K. Eby Constr.
Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)

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(quoting Jones v. Greninger, 188 F.3d 322, 324 (5th Cir. 1999)).
However, “the tenet that a court must accept as true all of the
allegations contained in a complaint is inapplicable to legal
conclusions.

Threadbare recitals of the elements of a cause of

action, supported by mere conclusory statements, do not suffice.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)(citing Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007)).
To overcome a Rule 12(b)(6) motion, a plaintiff must plead
“enough facts to state a claim to relief that is plausible on its
face.”

Twombly, 550 U.S. at 570.

“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).”
omitted).

Id. at 555 (citations and footnote

“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.
In addition, Fed.R.Civ.P. 9(b) provides that “[i]n alleging
fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.”

The purpose of Rule

9(b) is to prevent frivolous fraud claims from reaching a jury.
See Am. Realty Trust, Inc. v. Hamilton Lane Advisors, Inc., 115
Fed.Appx. 662, 667 (5th Cir. 2004)(noting that the purpose of Rule
9(b) is to “prevent[] a claimant from searching for a valid

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particular claim after filing suit” as well as to protect a
defendant

from

“the

harm

that

general,

unsubstantiated

fraud

accusations will cause”)(internal citations omitted)).
State law fraud claims are subject to the heightened pleading
requirements of Fed.R.Civ.P. 9(b).

Dorsey v. Portfolio Equities,

Inc., 540 F.3d 333, 338-39 (5th Cir. 2008). In order to satisfy the
pleading requirements of Rule 9(b), the plaintiff must “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.” Id. (citing Herrmann Holdings Ltd. v.
Lucent

Techs.

Inc.,

302

F.3d

552,

564-65

(5th

Cir.

2002)).

Essentially, Rule 9(b) requires the plaintiff to specifically
allege the who, what, and when of any fraud claim.

See ABC

Arbitrage v. Tchuruk, 291 F.3d 336, 349 (5th Cir. 2002).
To determine whether a complaint is sufficiently pled, a court
must consider the nine essential elements to recover on a theory of
fraud.

Those elements are: (1) a representation; (2) its falsity;

(3) its materiality; (4) the speaker’s knowledge of its falsity or
ignorance of its truth; (5) his intent that it should be acted upon
by the person and in the manner reasonably contemplated; (6) the
hearer’s ignorance of its falsity; (7) his reliance on its truth;
(8) his right to rely thereon; and (9) his consequent and proximate
injury.

Levens v. Campbell, 733 So. 2d 753, 761-62 (Miss. 1999);

see also KLLM Transp. Servs. v. Marsh USA, Inc., 450 Fed.Appx. 406,

4

409 (5th Cir. 2011)(applying the substantive law of Mississippi in
a diversity action and citing the nine elements required under
Mississippi law to state a fraud claim).
In

its

Complaint,

M

Street

alleges

that

Pete

Hanrahan,

Zurich’s adjuster, informed M Street that Zurich would pay for
emergency restoration services on the Hotel only if M Street used
Belfor for the work.

Complaint, ¶ 31.

The Complaint further

alleges:
Zurich and Belfor agreed that Belfor would perform work
on Zurich’s insurance claims at specified prices. Zurich
and Belfor agreed that Zurich would supervise and oversee
Belfor’s work.
Zurich and Belfor agreed that Zurich
would determine the scope and the extent of work done.
Zurich contracted with Belfor to perform water damage
restoration and repairs to the property insured under M
Street’s policy.
On September 5, 2012, Belfor’s representative, “Will,”
approached M Street with a document titled “Authorization
for Repairs & Payment.” The document exhibited Zurich’s
logo and was generated by Zurich. Will requested that M
Street execute the documents in such a way as to
authorize Zurich to make payment directly to Belfor. M
Street refused. M Street executed the document in such
a way that it required Zurich to make payment to M
Street, and stated that M Street would be responsible for
paying Belfor’s bill. ...
Complaint, ¶¶ 32-33.

M Street alleges that Belfor was under the

direction and control of Zurich at all times, and that it is also
independently liable for its own conduct.

Complaint, ¶¶ 36-37.

That independent liability is described as “negligently and/or
purposely fail[ing] to properly perform its work at the insured
property.”

Complaint, ¶ 38.

M Street also alleges that “Belfor

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and Zurich engaged in a civil conspiracy to minimize the amount
Zurich would have to pay on the insurance claim.” Complaint, ¶ 39.
In support of the allegation, M Street states that Chuck Shoffner,
a Belfor manager, “told Hanrahan that Shoffner had been in the
insured building many times prior to Hurricane Isaac, was very
familiar with the condition of the property prior to the hurricane,
and would support an assertion by Zurich that much of the damage
existed prior to Hurricane Isaac. ... Zurich and Belfor conspired
to come up with the story of Shoffner’s familiarity with ‘preexisting damage’ in order to minimize the amount Zurich would have
to pay for the claim.”

Complaint, ¶ 40.

M Street alleges that, as a result of the alleged conspiracy
between Zurich and Belfor, it was deprived of the right to choose
its own contractor to do the restoration work, incurred damage to
the building and personal property, was overcharged by Belfor, and
was underpaid on the insurance claim by Zurich.

Complaint, ¶ 42.

As for fraud, M Street alleges that a representative of Belfor,
“Will” (last name unknown) approached M Street about performing
emergency restoration services to the Hotel, and that “Will”
represented that “Belfor would work for M Street to make the
necessary water damage mitigation repairs and adequately dry the
building.”

Complaint, ¶ 43.

The Complaint also alleges that,

unknown to M Street, Belfor was actually working for Zurich to
minimize M Street’s insurance claim.

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Complaint, ¶¶ 39, 43.

M

Street alleges that Belfor did not perform the work that was
requested by M Street, and that Belfor purposefully failed to
adequately mitigate the damages to the hotel.

Complaint, ¶ 43.

M

Street further alleges that the representations were material
because they induced M Street to allow Belfor to perform the
mitigation services when it would not have otherwise done so.
Further, the plaintiff alleges that Belfor and its representative
had knowledge of the representation’s falsity, and intended that M
Street would act on the representations to hire Belfor, so that
Belfor could minimize what Zurich owed to M Street while maximizing
its own profit.

Complaint, ¶¶ 39, 43.

M Street also alleges that

it had no knowledge of the representations’ falsity.
43.

Complaint, ¶

Finally, M Street alleges that it suffered consequent and

proximate injury as a result of the fraudulent representations, in
that the building and its contents incurred further loss and
damage.

Complaint, ¶ 43.

The Fifth Circuit strictly construes Rule 9(b) and requires a
plaintiff pleading fraud “to specify the statements contended to be
fraudulent,
statements

identify
were

the

made,

speaker,

and

state

explain

why

when
the

and

where

statements

the
were

fraudulent.”

Williams v. WMX Techs., Inc., 112 F.3d 175, 177 (5th

Cir. 1997).

This standard also applies to pleading a state law

claim of conspiracy to commit fraud.

U.S. ex rel. Grubbs v.

Kanneganti, 565 F.3d 180, 193 (5th Cir. 2009)(“a plaintiff alleging

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a conspiracy to commit fraud must ‘plead with particularity the
conspiracy as well as the overt acts ... taken in furtherance of
the conspiracy’”)(quoting FC Inv. Group LLC v. IFX Markets, Ltd.,
529 F.3d 1087, 1097 (D.C. Cir. 2008)).

If the plaintiff fails to

state a claim for fraud underlying its civil conspiracy claim, the
civil conspiracy claim must also be dismissed.

Allstate Ins. Co.

v. Receivable finance, Inc., 501 F.3d 398, 414 (5th Cir. 2007).
The Court recognizes that entering into an agreement with the
positive intention not to perform that agreement, and failing to
disclose that bad intent, is a species of fraud.
246 F.3d 391, 405 (5th Cir. 2001).

See In re Mercer,

Here, the fraud alleged is

Belfor’s misrepresentation of an intent to perform when it in fact
had no intention to perform in the manner reasonably expected by
the

plaintiff.

That

much

is

clearly

pled.

However,

averments in the Complaint are vague and conclusory.
requires

the

plaintiff

person(s)

who

performed

plaintiff

relied

on

to

identify

allegedly

such,

how

the

the

Rule 9(b)

speaker(s)

deceptive
work

and

conduct,

done

by

other

other

how

the

Belfor

was

inadequate, how the amounts charged were excessive, who failed to
provide an adequate explanation for the inadequacy of the work and
the excessiveness of the charges, etc.

This applies to both the

fraud and conspiracy to commit fraud claims.

Thus, the claims of

fraud and conspiracy to commit fraud must be dismissed.
The plaintiff also requests leave to amend its complaint to

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cure any deficiencies.

“In light of the consequences associated

with a dismissal on the pleadings and the preference towards
adjudicating a case on the merits, ‘district courts often afford
plaintiffs at least one opportunity to cure pleading deficiencies
before dismissing a case, unless it is clear that the defects are
incurable

or

the

plaintiffs

unwilling

or

unable

to

advise

amend

in

the
a

court

manner

that

that

they

will

are

avoid

dismissal.’” Santos v. Nationwide Prop. & Cas. Ins. Co., 2010 WL
4236872, at *2 (S.D. Tex. Oct. 21, 2010)(quoting Great Plains Trust
Co. v. Morgan Stanley Dean Witter & Co., 313 F.3d 305, 329 (5th Cir.
2002)).
In

this

case,

the

plaintiff’s

allegations

of

fraud

and

conspiracy to commit fraud are insufficient to satisfy Rule 9(b)’s
particularity requirement.

Although the plaintiff has pled that

the defendants engaged in fraudulent conduct and/or knowingly
concealed certain material information, it has failed to set forth
the “who, what, when, where and how” relative to the defendants’
alleged fraudulent behavior. Therefore, Belfor’s motion to dismiss
shall be granted.

M Street, however, shall be granted leave to

amend its complaint to include allegations sufficient with Rule
9(b)’s requirements.
Accordingly,
IT IS HEREBY ORDERED that defendant Belfor USA Group, Inc.’s
motion to dismiss plaintiff’s fraud claims (docket entry 11) is

9

GRANTED;
FURTHER ORDERED that plaintiff M Street Investments, Inc., is
granted

leave

to

amend

its

complaint

to

include

allegations

sufficient with Rule 9(b)’s requirements by April 26, 2014.
SO ORDERED, this the 28th day of March, 2014.

/s/ David Bramlette
UNITED STATES DISTRICT JUDGE

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