Elkhart Metal Fabricating, Inc. et al v. Martin et al
MEMORANDUM AND ORDER: IT IS HEREBY ORDERED that Plaintiffs' Motion to Dismiss Counts IV, V and VI of Defendants' Fourth Amended Counterclaim, (ECF No. 52 ), is GRANTED, and Counts IV, V, and VI of Defendants' Fourth Amended Answer, (ECF No. 47 ), are DISMISSED. Signed by District Judge Jean C. Hamilton on 04/09/2015. (CLK)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
and BULL MOOSE TUBE COMPANY,
JOHN K. MARTIN, ELKHART METAL
DISTRIBUTING, INC. and STEURY
Case No. 14-cv-00705
MEMORANDUM AND ORDER
This matter is before the Court on Plaintiffs’ Motion to Dismiss Counts IV, V and VI of
Defendants’ Fourth Amended Counterclaim. (ECF No. 52). The Motion has been fully briefed
and is ready for disposition.
Plaintiffs Elkhart Metal Fabricating, Inc. (“EMF”) and Bull Moose Tube Company (“Bull
Moose”) initiated this action on February 11, 2014 by filing suit against Defendants John K.
Martin, Elkhart Metal Distributing, Inc. (“EMD”), and Steury Property, L.L.C. (“Steury”) in the
Circuit Court for St. Louis County, Missouri. (Removal Notice, ECF No. 1, ¶ 1). Defendants
then timely removed to this Court on April 7, 2014. Id. They filed an answer on April 28, 2014,
which has been amended four times and currently includes several counterclaims against
Plaintiffs. (4th Amd. Answer, ECF No. 47).
The counterclaims involve various business agreements that Defendants Martin and EMD
entered into with Plaintiffs EMF and Bull Moose. Two agreements are relevant here. The first is
the Asset Purchase Agreement, under which EMF, a wholly-owned subsidiary of Bull Moose,
agreed to purchase the assets of EMD. (Complaint, ECF No. 4, ¶¶ 11, 12). The second is the
Employment Agreement, under which “Martin agreed to be employed by EMF as President of
EMF for a period of five years.” (4th Amd. Answer, p. 26 ¶ 10).
Defendants allege in their counterclaims, inter alia, that Plaintiffs negligently and
fraudulently made misrepresentations in the course of negotiating these agreements. Id. pp. 3234. They also allege that Plaintiffs breached fiduciary and disclosure duties owed to Martin that
arose in the course of his employment with EMF. Id. p. 35. These allegations make up Counts
IV, V, and VI of Defendants’ counterclaims. Plaintiffs seek in their Motion to have each of these
claims dismissed for failure to state a claim. (Motion ¶ 3).
MOTION TO DISMISS STANDARD
Fed. R. Civ. P. 8(a)(2) requires “‘a short and plain statement of the claim showing that
the pleader is entitled to relief’ . . . .” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)
(quoting Fed. R. Civ. P. 8(a)(2)). When ruling on a motion to dismiss for failure to state a claim
under Rule 12(b)(6), courts must view the allegations in the complaint in the light most favorable
to the plaintiff. Scheuer v. Rhodes, 416 U.S. 232, 236 (1974). Courts must also “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). A Rule 12(b)(6)
motion to dismiss must be granted if the complaint does not contain “enough facts to state a
claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570 (2007). Stated differently,
to survive a Rule 12(b)(6) motion, a complaint’s “[f]actual allegations must be enough to raise a
right to relief above the speculative level . . . .” Id. at 555 (citations omitted).
Counts IV and V
Plaintiffs contend Count IV, the fraudulent misrepresentation claim, and Count V, the
negligent misrepresentation claim, should be dismissed because Defendants insufficiently pled
that the alleged misrepresentations caused damages. “Specifically, Defendants allege that ‘EMD
and Martin in fact relied, and had a right to rely upon, the misrepresentations and omissions by
BMT when he created and submitted sales forecasts to BMT.’” (Plaintiff Support Memo, ECF
No. 53, at 4 (emphasis in original) (footnote omitted) (quoting 4th Amd. Answer, p.33 ¶ 75)).
Plaintiffs contend this allegation is insufficient because the Complaint “fails to allege any facts
that suggest how Martin’s sales forecasts, if indeed they were influenced by the alleged
misrepresentations, proximately caused injury to Martin or EMD.” Id.
Defendants respond that Plaintiffs argument is beyond the scope of a motion to dismiss.
(Defendant Response, ECF No. 56, at 5). This is because “Defendants have alleged damage, and
are not required to plead the extent of that damage at this time. The allegation must be taken as
true, though Plaintiffs are certainly entitled to discovery on the issue.” Id. Defendants further
allege that the misrepresentations related to EMF’s business performance, which was part of the
basis for Martin’s compensation. Id. at 5-6. Thus, the misrepresentations had an impact on
Martin’s willingness to enter into the agreement. Id.
There is a preliminary question here as to whether Missouri or Indiana law applies. Both
parties have noted the issue in their briefing. Neither party, however, attempts to resolve the
issue, and it will have no impact on the outcome of the Motion. In both Missouri and Indiana,
one element of the torts of fraudulent and negligent misrepresentation is causation. Verni v.
Cleveland Chiropractic Coll., 212 S.W.3d 150, 154 (Mo. 2007) (en banc) (Missouri fraudulent
misrepresentation); Reed v. Reid, 980 N.E.2d 277, 292 (Ind. 2012) (Indiana fraudulent
misrepresentation); Renaissance Leasing, LLC v. Vermeer Mfg. Co., 322 S.W.3d 112, 134 (Mo.
2010) (en banc) (Missouri negligent misrepresentation); U.S. Bank, N.A. v. Integrity Land Title
Corp., 929 N.E.2d 742, 747 (Ind. 2010) (Indiana negligent misrepresentation). Specifically, a
claimant must show that some injury was caused by the tortfeasor’s alleged misrepresentations.
Thus, to survive a Rule 12(b)(6) motion under either Indiana or Missouri misrepresentation law,
a claimant must allege sufficient facts to establish a plausible claim that the alleged tortfeasor
caused him injury.
In support of Count IV, the fraudulent misrepresentation claim, Defendants make the
following factual allegations.
62. Jack Meyer, President of [Bull Moose], orally represented to EMD
and Martin that [Bull Moose] would give EMF pricing that would give
EMF a significant advantage over EMF’s competition.
63. Jack Meyer, President of [Bull Moose], represented to EMD and
Martin that EMF would have capital to expand product offerings and
64. Jack Meyer, President of [Bull Moose], represented to EMD and
Martin that it would support efforts to increase sales at EMF.
65. Jack Meyer, President of [Bull Moose], represented to EMD and
Martin that it would not compete with EMF.
66. [Bull Moose] made these representations on multiple occasions
during the time period in which the APA was being negotiated.
74. [Bull Moose] intended that EMD and Martin rely upon the
misrepresentations and omissions.
75. EMD and Martin in fact relied, and had a right to rely upon, the
misrepresentations and omissions by [Bull Moose] when he created and
submitted sales forecasts to [Bull Moose].
76. EMD and Martin suffered injury as a result of their reliance on the
misrepresentations and omissions by [Bull Moose].
(4th Amd. Answer p. 32 ¶¶ 62-66, p.33 ¶¶ 74-76).
In Count V, the negligent misrepresentation claim, Defendants repeat the allegations as to
what misrepresentations Bull Moose made, then allege the following:
83. The supplied false information and omitted material information
was intentionally provided for the guidance of EMD and Martin in
connection with the APA and Employment Agreement.
84. In doing so, [Bull Moose] failed to exercise reasonable care or
competence in obtaining or communicating the information to EMD and
85. EMD and Martin justifiably relied on the information.
86. EMD and Martin suffered pecuniary loss caused by their justifiable
reliance upon the information supplied or omitted by [Bull Moose].
(4th Amd. Answer p. 34 ¶¶ 83-86).
Defendants’ factual allegations are insufficient to state a plausible claim for fraudulent or
negligent misrepresentation. In Count IV, Defendants make allegations regarding the various
misrepresentations made, the manner in which Defendants relied on those allegations, and a
conclusory allegation that Defendants “suffered injury.” But there is nothing connecting the
actions Defendants took in reliance on Plaintiffs’ alleged misrepresentations with the alleged
injury. This inadequacy is due primarily to the vague nature of the reliance allegation and
conclusory nature of the injury allegation. Defendants allege that Martin “created and submitted
sales forecasts” in reliance upon Plaintiffs’ allegations but do not indicate the significance of
those forecasts. Combined with Defendants’ conclusory allegation that Defendants “suffered
injury,” it is impossible to discern how Martin’s actions are allegedly related to the injury
Defendants suffered and, consequently, how the misrepresentations caused the injury.
Count V fares no better. In that count, Defendants simply allege that they “justifiably
relied” on the misrepresented information and “suffered pecuniary loss” as a result. These are
nothing more than bare legal conclusions. There is therefore no need under Twombly to take
them as true for purposes of this motion to dismiss. And more relevant here, there is nothing to
connect the two allegations and thus nothing on which to conclude that Plaintiffs’
misrepresentations caused Defendants’ injuries. In short, Counts IV and V are speculative claims
for fraudulent and negligent misrepresentation that cannot survive this Rule 12(b)(6) motion.
In Count VI, Defendants claim that Plaintiffs breached both a fiduciary duty and a
disclosure duty owed to Defendants. Plaintiffs contend this count should be dismissed because it
does not contain enough facts to support the existence of a fiduciary relationship. According to
Plaintiffs, “Defendants allege that EMF owed Martin a fiduciary duty merely by virtue of the fact
that it employed him.” (Plaintiff Support Memo at 6). On its own, this allegation is not sufficient
to support the existence of a fiduciary relationship. Id.
Defendants respond that, contrary to Plaintiffs’ assertions, “Indiana imposes a clear
fiduciary duty on an employer, and Missouri imposes a duty on parties depending on the facts of
their relationship in a particular case . . . .” (Defendant Response at 8). Specifically, Defendants
assert that “[u]nder Indiana law, employment creates a special relationship. The employer owes
special duties to the employee. Among these is a duty of disclosure.” Id. at 7 (internal citations
omitted). Defendants also contend that fiduciary relationships in Missouri are determined on a
case-by-case basis, and that “[o]nce an agency relationship has been established, a fiduciary
relationship arises as a matter of law.” Id. In addition to the fiduciary relationship, “[a] duty to
disclose is further imposed where one party expressly, or by clear implication, places special
confidence in the other.” Id.
Under both Missouri and Indiana law, one element of a breach of fiduciary duty claim is
the existence of a fiduciary relationship. Grewell v. State Farm Mut. Auto. Ins. Co., 162 S.W.3d
503, 508 (Mo. Ct. App. 2005) (Missouri law); York v. Fredrick, 947 N.E.2d 969, 978 (Ind. Ct.
App. 2011) (Indiana law). In Missouri, such a relationship has five elements:
(1) one party must be subservient to the dominant mind and will of the other
party 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 party, 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 and 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
A.G. Edwards & Sons, Inc. v. Drew, 978 S.W.2d 386, 394 (Mo. Ct. App. 1998). “There are,
however, instances in which a fiduciary relationship exists absent the above elements.” Id.
Examples include the attorney-client relationship and the physician-patient relationship. Id.
Missouri courts have also recognized an insurer-insured fiduciary relationship that arises as a
matter of law. Grewell, 162 S.W.3d at 509.
Within this framework, Defendants contend that, in Missouri, “[o]nce an agency
relationship has been established, a fiduciary relationship arises as a matter of law.” (Defendant
Response at 7 (citing A.G. Edwards, 978 S.W.2d at 395). This is an accurate statement of
Missouri law, but one that is not relevant under these facts. It is true that in Missouri “[e]very
employee owes his or her employer a duty of loyalty.” Midwestern Blue Print Co., LLC v.
Roberts, 367 S.W.3d 7, 15 (Mo. 2012) (en banc). Missouri courts have also made “clear that
officers and directors of public and closely held corporations are fiduciaries . . . .” Id. There are
no Missouri cases, however, that stand for the proposition that an employer corporation
necessarily owes fiduciary duties to its employees as a matter of law. This does not mean that a
fiduciary relationship can never arise in such a situation. It means such a duty does not arise
automatically due to the nature of the relationship. Instead, a claimant who wishes to
demonstrate the existence of a fiduciary duty owed by an employer to an employee must plead
and prove the five elements set forth above.
Apart from fiduciary duties, Missouri also recognizes a duty to disclose in certain
situations, including employment relationships. McCoy v. Spelman Mem’l Hosp., 845 S.W.2d
727 (Mo. Ct. App. 1993). In Missouri, a disclosure duty claim is a type of misrepresentation
claim. White v. Bowman, 304 S.W.3d 141 (Mo. Ct. App. 2009). “A duty to disclose exists where
there is a relationship of trust and confidence between the parties or where one party has superior
knowledge or information of a material fact that is not within the fair and reasonable reach of the
other party.” Id. at 149.
Indiana law is slightly different from Missouri law in that it specifically recognizes duties
owed by an employer to an employee, although the Indiana Supreme Court has stopped short of
calling those duties “fiduciary.” In Northern Indiana Public Service Co. v. Bloom, 847 N.E.2d
175 (Ind. 2006), the court explained that “[e]mployment creates a species of agency relationship.
The employee owes fiduciary duties to the employer. The employer also owes special duties to
the employee. Among these is a duty of disclosure.” Id. at 187 (internal citations omitted). It
explained that this disclosure duty requires a principal “‘to inform the agent of risks of physical
harm or pecuniary loss which, as the principal has reason to know, exist in the performance of
authorized acts and which he has reason to know are unknown to the agent.” Id. (quoting
Restatement (Second) of Agency § 435 (1958)). The unknown information that has been withheld
must be of a type that is “likely to subject [the employee] to pecuniary loss” or physical harm. Id.
at 188 (internal quotation marks omitted). To survive this Rule 12(b)(6) motion, Defendants
must have pled sufficient facts to support a plausible claim under one of these theories.
Defendants have alleged the following facts in support of their claim that EMF breached
either the fiduciary duty or the duty of disclosure it owed to Martin:
89. EMF employed Martin and consented to Martin acting on EMF’s
behalf and subject to its control. A principal and agent relationship existed
between EMF and Martin.
90. A fiduciary relationship existed between EMF and Martin.
91. A large portion of Martin’s compensation with EMF directly related
to EMF’s sales for the fiscal year.
92. Jack Meyer, President of [Bull Moose], orally represented to EMD
and Martin that [Bull Moose] would give EMF pricing that would give
EMF a significant advantage over EMF’s competition.
93. This representation was false and affected Martin’s pecuniary
94. EMF had a fiduciary duty to disclose information to Martin that
would likely subject him to pecuniary loss.
95. EMF had reason to know that the information was unknown to
96. EMF breached its fiduciary duty by failing to disclose the
information to Martin.
97. Due to EMF’s failure to disclose the information, Martin suffered
(4th Amd. Answer p. 35 ¶¶ 89-97).
There are significant shortcomings in these allegations. Missouri law, as explained above,
requires the existence of a fiduciary relationship for a breach of fiduciary duty claim. The only
fact Defendants have alleged to support the existence of such a relationship is that Martin was an
employee of EMF. On its own, this is not sufficient to support the existence of a fiduciary
relationship under Missouri law. Without an adequately pled fiduciary relationship, Defendants’
breach of fiduciary duty claim is not plausible under Missouri law.
Nor are there sufficient allegations to support the existence of a relationship of trust and
confidence, which Missouri requires for a breach of disclosure duty claim. In Missouri, “‘an
employer-employee relationship, without more, is insufficient to cause a confidential relationship
to exist as to knowledge naturally acquired during employment.’” Roberts, 367 S.W.3d at 16
(quoting Walter E. Zemitsch, Inc. v. Harrison, 712 S.W.2d 418, 421 (Mo. Ct. App. 1986)).
Again, Plaintiffs have alleged only that a duty to disclose arose because Martin was an employee
of EMF. In addition to being insufficient to support the existence of a fiduciary duty, this is also
insufficient to support the existence of a confidential relationship giving rise to a disclosure duty
under Missouri law.
Defendants’ claim is also inadequate under Indiana law. The shortcomings under Indiana
law are similar to the shortcomings in the misrepresentation claims: it is impossible to discern
how the alleged withholding of information, even if it breached a disclosure duty, caused damage
to Martin. The factual allegation Defendants make is that EMF failed to disclose prior
misrepresentations made to Martin by Bull Moose regarding the pricing Bull Moose would give
EMF. This pricing would have given “EMF a significant advantage over EMF’s competition.”
(4th Amd. Answer p. 35 ¶ 92). It is understandable how a failure to give EMF competitive
pricing would impact its business performance and therefore Martin’s pecuniary interests, since
his compensation was allegedly based on EMF’s performance. But Defendants’ pleadings give
no indication as to how Bull Moose’s deceit “was likely to subject [Martin] to pecuniary loss”
after Martin had already become an employee of EMF, Bloom, 847 N.E.2d at 188 (internal
quotation marks omitted), and how disclosure of that deceit would have changed the situation.
Any attempt based on Defendants’ factual allegations to connect EMF’s failure to disclose Bull
Moose’s misrepresentation with Martin’s unspecified pecuniary loss is therefore speculative.
Such a speculative claim is not sufficient under Twombly. Thus, regardless of whether Indiana or
Missouri law applies, Defendants’ claim for breach of fiduciary duty or the duty of disclosure
cannot survive this Rule 12(b)(6) motion.
IT IS HEREBY ORDERED that Plaintiffs’ Motion to Dismiss Counts IV, V and VI of
Defendants’ Fourth Amended Counterclaim, (ECF No. 52), is GRANTED, and Counts IV, V,
and VI of Defendants’ Fourth Amended Answer, (ECF No. 47), are DISMISSED.
Dated this 9th Day of April, 2015.
/s/ Jean C. Hamilton
UNITED STATES DISTRICT JUDGE
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