Graham Construction Services, Inc v. Hammer & Steel, Inc

Filing 69

MEMORANDUM AND ORDER IT IS HEREBY ORDERED that Defendants Motion to Dismiss (ECF No. 61) is GRANTED in part, and Counts IV and V of Grahams Amended Complaint are dismissed without prejudice. IT IS FURTHER ORDERED that Graham is granted twenty (20) days from the date of this Order in which to file an Amended Complaint. 61 ( Response to Court due by 3/22/2012.) Signed by Honorable Jean C. Hamilton on 3/2/12. (CLA)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

GRAHAM CONSTRUCTION SERVICES,
INC.,
Plaintiff(s),
vs.
HAMMER & STEEL, INC.,
Defendant(s).

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Case No. 4:11CV1316 JCH

MEMORANDUM AND ORDER
This matter is before the Court on Defendant Hammer & Steel, Inc.’s Motion to Dismiss, filed
December 30, 2011. (ECF No. 61). The matter is fully briefed and ready for disposition.
BACKGROUND
Plaintiff Graham Construction Services, Inc. (“Graham”) is a Minnesota corporation, with its
principal place of business located in Minnesota. (Amended Complaint (“Compl.”), ¶ 1). Defendant
Hammer & Steel, Inc. (“H&S”) is a Missouri corporation, with its principal place of business located
in Missouri. (Id., ¶ 2). Graham instituted its first action in the Northwestern Division of the District
Court of North Dakota. (Id., ¶ 5). The District Court of North Dakota transferred the case to this
Court pursuant to 28 U.S.C. § 1404(a) on July 27, 2011. (Id.).
On or about October 1, 2009, Graham, as subcontractor, entered into an agreement with
Industrial Contract Services, Inc., as general contractor, to provide construction services for the
Parshall Raw Water Intake Structure project (the “Project”) in Parshall, North Dakota. (Compl., ¶
6). One of the Graham’s responsibilities under the contract was to construct a caisson, or shaft for
a foundation. (Id., ¶ 7). Graham consulted with H&S, regarding H&S’s ability to supply and lease

appropriate drilling equipment for the construction of the caisson. (Id., ¶ 9).1 H&S had leased
equipment to Graham in the past, pursuant to equipment rental agreements. (Id., ¶ 8; Answer, ¶ 8).
According to Graham, H&S made representations that it could provide appropriate drilling
equipment for the construction of the caisson. (Compl., ¶ 10). On or about September 17, 2009,
H&S provided Graham with a proposal for the design, fabrication, and purchase of a 168” Max Cut
Over Reaming Tool (“Over Reaming Tool”). (Id., ¶ 16). Graham maintains H&S further represented
that Graham should lease a Sany Model SR 250 Hydraulic Drilling Rig (“Sany Drill Rig”) from H&S,
to drive the Over Reaming Tool for the construction of the caisson. (Id.). Graham claims that H&S
represented to Graham that the only drilling rig that could reach the depths required for the Project
was the Sany Drill Rig. (Id.). Graham purchased the Over Reaming Tool in December, 2009, and
signed a rental agreement for both the Sany Drill Rig and a 60" Hartfuss heavy duty auger on or
about December 3, 2009. (Id., ¶ 19; Answer, ¶ 19).
On or about December 12, 2009, Graham began drilling the pilot shaft with the auger head
leased from H&S. (Compl., ¶ 21). According to Graham, during the drilling a component of the
Sany Drill Rig snapped, leaving the auger head embedded approximately 115 feet below the surface
of the caisson excavation pit. (Id.). Graham attempted numerous times to retrieve the embedded
auger head but was not successful. (Id., ¶ 22). Graham maintains it was forced to relocate the site
of the caisson excavation pit and drilling platform, thereby incurring significant expenses and delays.
(Id). According to Graham, H&S informed Graham that the Sany Drill Rig could not complete the
required drilling for the construction of the caisson, and that it therefore would be removing the Sany
Drill Rig from the Project. (Id., ¶ 23).

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While Graham maintains that as part of the consultation, it supplied H&S with a great
deal of information regarding the Project, H&S admits only that Graham provided a copy of a
geotechnical report. (H&S’s Amended Answer and Counterclaim (“Answer”), ¶ 9).
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Graham filed a seven-count Amended Complaint as a result of the alleged failure of the Sany
Drill Rig. (ECF No. 59). The two counts addressed in this Order, Counts IV and V, claim Actual
Fraud (Fraudulent Inducement), and Constructive Fraud. As stated above, H&S filed the instant
Motion to Dismiss on December 30, 2011, seeking dismissal of Counts IV and V of the Amended
Complaint pursuant Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure, because
Graham’s fraud claims fail to state claims upon which relief can be granted, and because Graham fails
to plead its fraud claims with particularity. (ECF No. 61).
MOTION TO DISMISS STANDARD
In ruling on a motion to dismiss, the Court must view the allegations in the Complaint in the
light most favorable to Plaintiff. Eckert v. Titan Tire Corp., 514 F.3d 801, 806 (8th Cir. 2008) (citing
Luney v. SGS Auto. Servs., Inc., 432 F.3d 866, 867 (8th Cir. 2005)). Additionally, the Court “must
accept the allegations contained in the complaint as true and draw all reasonable inferences in favor
of the nonmoving party.” Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir. 2005) (citation omitted).
A motion to dismiss must be granted, however, if the Complaint does not contain, “enough facts to
state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544,
570, 127 S. Ct. 1955, 1974, 167 L.Ed.2d 929 (2007) (abrogating the “no set of facts” standard for
Fed.R.Civ.P. 12(b)(6) found in Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). While a Complaint
attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s
obligation to provide the grounds of his entitlement to relief “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 (citation omitted); Huang v. Gateway Hotel Holdings, 520 F.Supp.2d 1137, 1140
(E.D. Mo. 2007). Stated differently, to survive a motion to dismiss the Complaint’s factual

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allegations, “must be enough to raise a right to relief above the speculative level.” Twombly, 550
U.S. at 555 (citations omitted).
DISCUSSION
A.

Count IV: Fraudulent Inducement: Actual Fraud
In Count IV of its Amended Complaint, Graham asserts H&S committed “actual

fraud/fraudulent inducement” when, after examining the geotechnical information for the Project, it
“assured and represented to Graham that the drilling equipment, including the Sany Drill Rig, was the
appropriate drilling equipment that could timely complete the construction of the caisson for the
Project work.” (Compl., ¶ 54(a)). Graham continues to allege that H&S knew or reasonably should
have known these assertions were false, but nevertheless intended that Graham would rely on the
representations and lease the drilling equipment, which it did. (Id., ¶ 54(c), (e), (f)).
As stated above, in its Motion to Dismiss H&S asserts that Count IV of Graham’s Amended
Complaint must be dismissed pursuant to Fed.R.Civ.P. Rules 12(b)(6) and 9(b) because (1) Graham
fails to state a claim upon which relief can be granted, and (2) Graham fails to plead its fraud claim
with specificity. (ECF No. 62, PP. 6-7, 8-9).
In order to succeed on its claim for fraudulent inducement Graham must prove the following
elements:

“(1) that [H&S] made certain material representations to [Graham]; (2) such

representations were false when made; (3) that [H&S] knew the representations were false; (4) that
the representations were made with the purpose of deceiving [Graham]; (5) that [Graham] was, in
fact, deceived; (6) [Graham] reasonably relied on the representations in signing the [rental and/or
purchase agreements]; and (7) [Graham] suffered damage as a proximate result of the fraudulent
misrepresentations.” Bracht v. Grushewsky, 448 F.Supp.2d 1103, 1110 (E.D. Mo. 2006), citing
Trotter’s Corp. v. Ringleader Restaurants, Inc., 929 S.W.2d 935, 939 (1996). See also U.S. for Use

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of Bussen Quarries, Inc. v. Thomas, 938 F.2d 831, 833 (8th Cir. 1991) (holding that element three
of a claim for fraudulent inducement requires proof of the defendant’s knowledge of the
representation’s falsity, or ignorance of its truth). Graham further must demonstrate that H&S did
not intend to perform consistent with the alleged statements, at the time the statements were made.
Cole v. Homier Distributing Co., Inc. 599 F.3d 856, 862 (8th Cir. 2010). “[A]bsent such an
inconsistent intent there is no misrepresentation of fact or state of mind but only a breach of promise
or failure to perform.” Craft v. Metromedia, Inc., 766 F.2d 1205, 1219 (8th Cir. 1985) (citations
omitted), cert. denied, 475 U.S. 1058 (1986).
Upon consideration, the Court finds it premature to consider whether the allegations in Count
IV of Graham’s Amended Complaint state a claim for relief, because the Court agrees they lack
sufficient particularity as required by Federal Rule of Civil Procedure 9(b). Rule 9(b) states in
relevant part as follows: “In alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). “The sufficiency of the pleading
under Rule 9(b) depends upon the nature of the case, the complexity or simplicity of the transaction
or occurrence, the relationship of the parties and the determination of how much circumstantial detail
is necessary to give notice to the adverse party and enable him to prepare a responsive pleading.”
U.S. ex rel. O’Keefe v. McDonnell Douglas Corp., 918 F.Supp. 1338, 1345 (E.D. Mo. 1996)
(internal quotations and citations omitted). In all cases, however, the party asserting fraud must
identify the who, what, when, where and how of the alleged fraud. U.S. ex rel. Costner v. U.S., 317
F.3d 883, 888 (8th Cir.), cert. denied, 540 U.S. 875 (2003). See also Abels v. Farmers Commodities
Corp., 259 F.3d 910, 920 (8th Cir. 2001) (internal quotations and citations omitted) (in order to
comply with Rule 9(b), a plaintiff, “must specifically allege the circumstances constituting fraud,
Fed.R.Civ.P. 9(b), including such matters as the time, place and contents of false representations, as

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well as the identity of the person making the misrepresentation and what was obtained or given up
thereby.”). “[C]onclusory allegations that a defendant’s conduct was fraudulent and deceptive are
not sufficient to satisfy the rule.” Parnes v. Gateway 2000, Inc., 122 F.3d 539, 549 (8th Cir. 1997)
(internal quotations and citations omitted).
In the instant case, H&S avers Graham does not attribute the alleged false assurances to a
particular H&S employee, nor does it “state what facts were allegedly represented by H&S that
constituted assurances of ‘appropriate drilling equipment.’” (ECF No. 62, P. 9). H&S further
maintains Graham alleges neither where nor how the alleged representations were made, nor to
whom. (Id.).
Upon consideration, the Court agrees that by failing to provide such basic information as the
identity of the H&S employee(s) making the alleged representations, the content of such
representations, and the manner in which they allegedly were untrue, Graham has deprived H&S of
the opportunity to prepare an effective defense. H&S’s Motion to Dismiss with respect to Count IV
will therefore be granted. Graham will be granted twenty (20) days from the date of this Order,
however, in which to file an Amended Complaint that meets the requirements of Rule 9(b). See
Molex Inc. v. Wyler, 365 F.Supp.2d 901, 912 (N.D. Illinois 2005) (holding the proper remedy for
failure to plead fraud with particularity is not dismissal of the claims or striking of the pleading, but
allowance of an amendment under Rule 15).2
B.

Count V: Constructive Fraud
In Count V of its Amended Complaint, Graham asserts H&S committed “constructive

fraud/fraudulent inducement.” (Compl., ¶ 57). The allegations in Count V are identical to those in

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In light of the Court’s decision to grant Graham leave to amend, it need not determine
whether the affidavit submitted with Graham’s response properly could be considered on this
Motion to Dismiss.
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Count IV, except that rather than allege H&S “knew or reasonably should have known” the
assertions and representations were incorrect, Graham asserts “H&S was ignorant of the truth of
these assertions and representations.” (Id., ¶ 57(c)).
In order to prove constructive fraud, “a plaintiff must show that a person breached a promise
to another during the existence of a confidential relationship.” In re Estate of Goldschmidt, 215
S.W.3d 215, 223 (Mo.App. 2006) (citation omitted). “A confidential and fiduciary relationship3
exists when one relies upon and trusts in another to handle his property or business affairs.” Id. at
221 (citation omitted). “To warrant recovery when a fiduciary or confidential relationship is
breached, proof of actual fraud is unnecessary, because the breach of any promise made during that
relationship will be considered constructively fraudulent.” Kratky v. Musil, 969 S.W.2d 371, 377
(Mo. App. 1998) (internal quotations and citations omitted).
“A fiduciary duty may arise as a matter of law by virtue of the parties’ relationship, e.g.
attorney-client, or it may arise as a result of the special circumstances of the parties’ relationship
where one places trust in another so that the latter gains superiority and influence over the former.”
Pool v. Farm Bureau Town & Country Ins. Co. of Missouri, 311 S.W. 3d 895, 907 (Mo. App. 2010)
(internal quotations and citation omitted). “Fiduciary duty is not created by a unilateral decision to
repose trust and confidence; it derives from the conduct or undertaking of the purported fiduciary
which is recognized by the law as justifying such reliance.” Farmers Ins. Co., Inc. v. McCarthy, 871
S.W.2d 82, 87 (Mo. App. 1994). The mere existence of a business relationship does not give rise to
a fiduciary relationship, nor to the presumption of such a relationship. Chmieleski v. City Products
Corp., 660 S.W.2d 275, 294 (Mo. App. 1983). See also American United Life Ins. Co. v. Douglas,

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“‘Confidential’ and ‘fiduciary’ are virtually synonymous terms.” Goldschmidt, 215
S.W.3d at 221 (citation omitted).
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808 N.E.2d 690, 701 (Ind. App. 2004) (citation omitted) (“A fiduciary relationship may not be
premised on an arms length transaction resulting in the formation of a contract.”). Rather, in order
to establish a confidential or fiduciary relationship the following basic elements must be proven: “1)
as between the parties, one must be subservient to the dominant mind and will of the other as a result
of age, state of health, illiteracy, mental disability, or ignorance; (2) things of value such as land,
monies, a business, or other things of value which are the property of the subservient person must be
possessed or managed by the dominant party; (3) there must be a surrender of independence by the
subservient party to the dominant party; (4) there must be an automatic or habitual manipulation of
the actions of the subservient party by the dominant party; and (5) there must be a showing that the
subservient party places a trust and confidence in the dominant party.” Chmieleski, 660 S.W.2d at
294.
Upon consideration, the Court finds that Graham cannot maintain its claim of constructive
fraud, as it fails to establish the existence of a confidential or fiduciary relationship between it and
H&S. Graham has not shown that it was subservient to H&S. Furthermore, while Graham may have
relied on H&S’s proposal to purchase the Over Reaming Tool and lease the Sany Drill Rig, Graham
is a sophisticated client, and there is no evidence its dealings with H&S were other than entirely armslength. H&S’s Motion to Dismiss with respects to Count V of Plaintiff’s Amended Complaint must
therefore be granted.4
CONCLUSION

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In its response, Graham makes the argument that a confidential or fiduciary relationship
is not required when seeking rescission as a remedy to constructive fraud, citing Evergreen
National Corp. v. Carr, 129 S.W.2d 492 (Mo. App. 2004). Graham did not seek rescission as a
remedy in its Amended Complaint, however, and therefore the Court will not address the merits
of this argument. The Court notes Graham has been granted leave to amend, however, and thus
at its option may include rescission as either a requested remedy or a separate count.
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Accordingly,
IT IS HEREBY ORDERED that Defendant’s Motion to Dismiss (ECF No. 61) is
GRANTED in part, and Counts IV and V of Graham’s Amended Complaint are dismissed without
prejudice.
IT IS FURTHER ORDERED that Graham is granted twenty (20) days from the date of this
Order in which to file an Amended Complaint.

Dated this 2nd day of March, 2012.

/s/Jean C. Hamilton
UNITED STATES DISTRICT JUDGE

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