ArcMelt Company, LC v. Ardleigh Minerals, Inc.

Filing 37

MEMORANDUM AND ORDER : IT IS HEREBY ORDERED that Plaintiffs Motion to Dismiss is GRANTED with respect to Count IV (Misrepresentation). IT IS FURTHER ORDERED that Plaintiffs Motion to Dismiss is DENIED with respect to Counts I, II, and III. Signed by District Judge Audrey G. Fleissig on 01/27/2016. (KCB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION

)
)
Plaintiff/Counterclaim Defendant, )
)
v.
)
)
)
ARDLEIGH MINERALS, INC.,
)
Defendant/Counterclaim Plaintiff. )
)
ARCMELT COMPANY, LC,

No. 4:15-CV-00181-AGF

MEMORANDUM AND ORDER
This matter is before the Court on Plaintiff ArcMelt Company, LC’s (“ArcMelt”)
Motion to Dismiss the counterclaims filed against it by Defendant Ardleigh Minerals, Inc.
(“Ardleigh”). For the reasons set forth below, Plaintiff’s motion will be granted as to
Defendant’s counterclaim for misrepresentation (Count IV); otherwise, Plaintiff’s motion
will be denied.
BACKGROUND
In this diversity breach of contract case, Plaintiff, a “scrapper” of used materials,
alleges that it entered into an agreement with Defendant, a recycler of surplus, offspecification, and byproduct materials, pursuant to which Plaintiff would sell to Defendant
cored wire of various diameters. (Doc. No. 1 at 2-3; Doc. No. 8 at 11.) Plaintiff’s
agreement with Defendant was memorialized in two separate purchase orders, one dated
May 2014, and another dated July 2014. (Doc. No. 1 at 2-3.) Prior to the arrangement,

Defendant tested a sample of the scrap material to confirm that Defendant would be able to
recycle and repurpose the material so it could be sold to a third party. (Doc. No. 8 at 12.)
In the May 2014 purchase order, Defendant agreed to pay Plaintiff $822,611.41; in the July
purchase order, Defendant agreed to pay Plaintiff an additional $196,528.40 for additional
material. Id. Plaintiff alleges that it fully performed its obligations under both purchase
orders by delivering the specified goods in several shipments throughout 2014.

Id.

Plaintiff alleges that Defendant refused to pay for the goods, and brings the current lawsuit,
asserting claims for breach of contract, action on account, unjust enrichment, and quantum
meruit.
Defendant admits that it executed the relevant purchase orders and that it received
shipments of goods from Plaintiff. (Doc. No. 8 at 2-3, 12.) It also admits that it has not
fully paid Plaintiff for the goods it received (although at least one payment, in the amount
of $17,100.20, was apparently made).

However, Defendant alleges, among other

affirmative defenses, that this failure to pay was because of “[Plaintiff]’s contractual
breaches, misrepresentations, and the legal principle of set-off in that the materials
[shipped] were defective, of inferior quality, and did not comport with the specifications
that [Plaintiff] represented.”

Id. at 3.

Defendant also asserts counterclaims against

Plaintiff, alleging that the chemical composition of the goods actually received from
Plaintiff varied substantially from the sample that Defendant tested prior to signing the
agreements with Plaintiff. Id. at 12. For example, among other variations in composition,
Defendant asserts that the materials actually received from Plaintiff were between 38.84%
and 44.56% nickel (instead of 28% as represented by Plaintiff) and 32.11% and 35.60%
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tungsten (instead of 55% as represented by Plaintiff). Id. at 14. Thus, Defendant suggests
that the market value of the goods was less than Plaintiff had originally suggested.
Defendant alleges that it resold the shipment of materials it received on June 4,
2014, prior to determining that the goods were nonconforming, and that the third parties to
whom Defendant sold the material may assert claims against Defendant.

Moreover,

Defendant claims that it sold some of the nonconforming material to one of its “important”
clients, who discovered the disparity in routine testing. Id. Defendant alleges that in spite
of the material’s shortcomings, Defendant’s important customer remained willing to
purchase the goods, but only at a deeply discounted price. Defendant has offered to pay
Plaintiff a similarly reduced price or otherwise to return the remaining materials to
Plaintiff.
Defendant has also suggested some other defects attendant with the goods, such as
hollow tubes that were supposed to be filled with material, and mislabeled boxes,
apparently reflecting the agreed-upon chemical composition rather than the actual
composition. Defendant asserts that it sustained damage to its business reputation, and
must undergo an expensive verification process in order to utilize any of the goods shipped
because it can no longer trust Plaintiff’s representations as to the quality of the goods. It
also alleges that it must pay storage fees for the goods during such a verification process.
Defendant’s counterclaims include causes of action for breach of contract, breach of
express warranty, breach of implied warranty, and misrepresentation.
In its instant motion, Plaintiff seeks to dismiss all of Defendant’s counterclaims
under Federal Rule of Civil Procedure 12(b)(6), arguing that Defendant has failed to allege
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that it has actually been damaged by Plaintiff. (Doc. No. 16 at 2.) Plaintiff states that even
if Defendant’s allegations are true, Defendant has not been damaged because, to date, it has
not paid Plaintiff for the goods it received, and therefore its bare allegations are insufficient
to maintain a claim.

Plaintiff asserts that Defendant’s nonmonetary damages are

hypothetical or otherwise vague. Plaintiff also asserts that the issues raised in Defendant’s
four counterclaims are a mere repackaging of affirmative defenses raised elsewhere in its
Answer. Finally, Plaintiff argues that Defendant’s misrepresentation claim is barred by the
economic loss doctrine. Id. at 3-4.
Defendant responds that its counterclaims allege facts constituting the following
damages:
 Plaintiff’s actions resulted in a significant decrease in the value of the goods in
Defendant’s possession because the chemical composition was different than what
Plaintiff represented.
 Defendant was forced to undergo a cost and time-sensitive review to verify the
contents of the good shipped by Plaintiff.
 Defendant must pay storage fees for materials that did not meet specifications or
contained other defects.
 Defendant’s business reputation was harmed because Defendant unknowingly sold
goods in the marketplace (to at least one “important customer[]”) that were belowgrade and defective.
(Doc. No. 16 at 4-7.)
DISCUSSION
To survive a 12(b)(6) motion to dismiss, a complaint “does not need detailed factual
allegations,” but the allegations must nonetheless “be enough to raise a right to relief above
the speculative level.”

Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).

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A

complainant need only allege facts that permit the reasonable inference that the defendant
is liable, even if the complaint “strikes a savvy judge that actual proof of the facts alleged is
improbable and recovery very remote and unlikely.” Hamilton v. Palm, 621 F.3d 816, 819
(8th Cir. 2010) (citation and internal quotation marks omitted). This, however, requires
more than mere “labels and conclusions,” and the complaint must state a claim that is
“plausible on its face.” Twombly, 550 U.S. at 570.
“When evaluating a motion to dismiss under Rule 12(b)(6) or 12(c), the Court
assumes the facts in the Complaint to be true and construes all reasonable inferences from
those facts in the light most favorable to the plaintiff.” Radcliffe v. Securian Fin. Grp.,
Inc., 906 F. Supp. 2d 874, 884 (D. Minn. 2012) (citing Morton v. Becker, 793 F.2d 185,
187 (8th Cir. 1986)). However, the Court is not required to accept the legal conclusions the
plaintiff draws from the facts alleged. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Retro
Television Network, Inc. v. Luken Comm’cns, LLC, 696 F.3d 766, 768–69 (8th Cir. 2012).
Counterclaims are analyzed using the same standard as claims asserted by an original
plaintiff. See, e.g., Bancorpsouth Bank v. Envtl. Operations, Inc., 10 F. Supp. 3d 975, 980
(E.D. Mo. 2014).
Sufficiency of Damages Allegations
The crux of Plaintiff’s motion to dismiss is that Defendant’s counterclaims must fail
because Defendant was not actually injured by Plaintiff’s actions, since Defendant has not
actually paid the vast majority of the amount called for in the parties’ agreement. State law
controls this action brought under diversity jurisdiction. See Washington v. Countrywide
Home Loans, Inc., 655 F.3d 869, 873 (8th Cir. 2011). As noted above, Defendant asserts
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four different counterclaims: breach of contract, breach of express warranty, breach of
implied warranty, and misrepresentation (Counts I-IV, respectively). Missouri law holds
that actual injury to the party asserting the claim is an element of each. See Keveney v. Mo.
Military Acad., 304 S.W.3d 98, 104 (Mo. 2010) (breach of contract); Renaissance Leasing,
LLC v. Vermeer Mfg. Co., 322 S.W.3d 112, 122 (Mo. 2010) (breach of express warranty);
W. Waterproofing Co. v. Elastomeric Roofing Sys., Inc., No. 4:09CV1520 TIA, 2010 WL
5392775, at *3 (E.D. Mo. Dec. 21, 2010) (breach of implied warranty); Collins v. Mo. Bar
Plan, 157 S.W.3d 726, 734 (Mo. Ct. App. 2005) (misrepresentation). Thus, actual damages
are indeed an essential element of Defendant’s counterclaims.
The Court rejects Plaintiff’s argument that because Defendant did not fully pay for
the goods, Defendant cannot have been damaged by Plaintiff’s own alleged breach.
Instead, the Court is convinced that the time and cost of Defendant’s verification process
following the receipt of the nonconforming goods, particularly given the unique nature of
the products; storage fees for goods that cannot be immediately sold as anticipated; and
harm to Defendant’s business reputation as a result of passing on goods that did not meet
specifications constitute independent and cognizable damages upon which Defendant may
have a right to recover.

Therefore, the element of damages with respect to each of

Defendant’s counterclaims is sufficiently met.
Plaintiff’s reliance on this Court’s opinion in Grawitch v. Charter Communications,
Inc., No. 4:12CV01990 AGF, 2013 WL 253534 (E.D. Mo. Jan. 23, 2013), aff’d, 750 F.3d
956 (8th Cir. 2014), is misplaced. In that case, the Court determined that plaintiffs’ claims
had no merit because the plaintiffs had received a service upgrade for free, and were not
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damaged simply because they were unable to utilize the upgrade. Grawitch, 2013 WL
253534, at *3. Here, by contrast, Defendant’s counterclaims allege actual damages, not
merely that Defendant cannot use products for which it has not fully paid. Specifically,
Defendant alleges as damages its own unanticipated costs in testing and verifying the
goods, unanticipated storage fees for the material, and loss of business reputation among its
clientele. It is not for the Court to decide at this juncture whether Defendant’s losses are
offset or outweighed by Plaintiff’s claims against Defendant. Instead, the Court’s inquiry
is limited to an analysis of whether the counterclaims as pled are “enough to raise a right to
relief above the speculative level.” Twombly, 550 U.S. at 555. The Court determines that
they are.
Counterclaims Repetitive of Affirmative Defenses
Plaintiff also argues that Defendant’s counterclaims should be dismissed because
they are repetitive of the affirmative defenses asserted. The Court agrees that to the extent
Defendant’s counterclaims seek the same relief and concern the same legal and factual
issues as their affirmative defenses, they should be dismissed. See, e.g., ACIST Med. Sys.,
Inc. v. OPSENS, Inc., No. CIV. 11-539 ADM/JJK, 2011 WL 4640884, at *2 (D. Minn. Oct.
4, 2011). However, the Court finds that because Defendant’s counterclaims seek damages
for independent injuries resulting out of Plaintiff’s alleged breach of contract, the
counterclaims are distinguishable from Defendant’s affirmative defenses and can be
maintained. When mutual allegations of breach are made, both parties are entitled to seek
affirmative relief. See, e.g., Melford Olsen Honey, Inc. v. Adee, 452 F.3d 956, 965 (8th Cir.
2006) (“In this case, however, factual questions existed as to whether both parties breached
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and when those breaches occurred. Therefore, these issues were properly submitted to the
jury.”). Again, the Court at this stage of the proceedings is not evaluating Defendant’s
likelihood of recovery in excess of any recovery to which Plaintiff may be entitled; instead,
it is only making a determination that Defendant’s counterclaims as stated are cognizable
based on the record now before the Court.
Counterclaim for Misrepresentation
Plaintiff next argues that because the misrepresentations Defendant alleges form the
basis of the contract between the parties, any relief must sound in contract, and a tort claim
for misrepresentation1 is barred by the economic loss doctrine. The Court agrees, and will
dismiss Defendant’s counterclaim for misrepresentation.
The economic loss doctrine prohibits a plaintiff from recovering in tort for economic
losses that are contractual in nature.

See Self v. Equilon Enterprises, LLC, No.

4:00CV1903 TIA, 2005 WL 3763533, at *8 (E.D. Mo. Mar. 30, 2005). Under Missouri
law, if the duty in a tort claim “arises solely from the contract, the action is contractual.”
Union Elec. Co. v. Chi. Bridge & Iron Co., No. 4:14CV31 RWS, 2015 WL 1262941, at *6
(E.D. Mo. Mar. 19, 2015) (quoting Liberty Mut. Fire Ins. Co. v. Centimark Corp., No.
4:08CV230, 2008 WL 5423440 DJS, at *2 (E.D. Mo. Dec. 29, 2008)).

“Attaching

additional tort liability to a breach of contract claim is only allowed when an independent
tort has been committed against the plaintiff” and “[t]he independent tort alleged cannot be
dependent on the elements of the contract claim.” Hullverson Law Firm, P.C. v. Liberty
1

Defendant does not specify whether its misrepresentation claim is intended to be a
claim for negligent or fraudulent misrepresentation. The Court will address both
possibilities in turn.
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Ins. Underwriters, Inc., No. 4:12-CV-1994 CAS, 2013 WL 3802517, at *1 (E.D. Mo. July
22, 2013) (internal citation and quotation marks omitted).
Construing Defendant’s counterclaim as one for negligent misrepresentation, the
Court determines that the counterclaim is not independent of Defendant’s breach of
contract counterclaim. Defendant states that the alleged misrepresentations were made
after the parties engaged in a business relationship and in the scope of entering into an
agreement. (Doc. No. 8 at 21-22.) Similarly, any duty breached by Plaintiff was a duty
imposed solely by the nature of the contractual relationship between the parties. Therefore,
Defendant’s remedy sounds in contract, not tort. See, e.g., Shaughnessy, Kniep, Hawe
Paper Co. v. Fettergroup, No. 4:14-CV-00233-JAR, 2015 WL 1456993, at *4 (E.D. Mo.
Mar. 30, 2015) (“In this case, Plaintiff has stated a claim for negligent misrepresentation
that rests almost wholly on [Defendant’s] refusal to pay for the invoiced Custom Paper . . .
[the alleged misrepresentation] is merely a reassurance that [Defendant] would continue
performing under the alleged contract.”).
The outcome is the same if the Court construes Defendant’s counterclaim as one for
fraudulent misrepresentation. Missouri courts have not directly addressed the applicability
of the economic loss doctrine to fraud claims. See Trademark Med., LLC v. Birchwood
Labs., Inc., 22 F. Supp. 3d 998, 1003 (E.D. Mo. 2014). However, this Court has previously
conducted an extensive review of Missouri and Eighth Circuit law on the doctrine’s
applicability to fraud claims, and has determined that, like claims for negligent
misrepresentation, “a fraud claim to recover economic losses must be independent of the
contract or such claim would be precluded by the economic loss doctrine.” Self, 2005 WL
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3763533, at *11. As stated above, Defendant’s counterclaim for misrepresentation is not
independent of its breach of contract counterclaim.
Defendant also argues that it is entitled to plead claims “in the alternative at this
stage of the litigation.” (Doc. No. 31 at 10.) The Court agrees, but this does not entitle
Defendant to pursue claims that are legally insufficient or barred by legal doctrine. The
counterclaim for misrepresentation will be dismissed.

CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Plaintiff’s Motion to Dismiss is GRANTED with
respect to Count IV (Misrepresentation).
IT IS FURTHER ORDERED that Plaintiff’s Motion to Dismiss is DENIED with
respect to Counts I, II, and III.

________________________________
AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE
Dated this 27th day of January, 2016.

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