Wells Fargo Financial Leasing, Inc. v. Tulley Automotive Group, Inc.
Filing
57
/// ORDER granting 34 CDK's Motion to Dismiss for Failure to State a Claim Tulley's Third-party Complaint; denying as moot 50 CDK's Motion to Stay Discovery; denying as moot 51 Tulley's Motion to Extend deadlines; and denying as moot 53 Tulley's Motion to Transfer the case. So Ordered by Judge Landya B. McCafferty.(jbw)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Wells Fargo Financial Leasing, Inc.
v.
Tulley Automotive Group, Inc.
Civil No. 16-cv-218-LM
Opinion No. 2017 DNH 172
v.
CDK Global, LLC, as
successor-in-interest to
ADP Dealer Services, Inc.
O R D E R
In this contract dispute, Wells Fargo Financial Leasing,
Inc. (“Wells Fargo”) sues Tulley Automotive Group, Inc.
(“Tulley”), alleging that Tulley defaulted on a lease agreement
for computer networking equipment.
Tulley filed a third-party
complaint against CDK Global, LLC (“CDK”) for indemnification,
alleging that CDK fraudulently induced Tulley to enter into the
lease agreement.
complaint.
CDK now moves to dismiss Tulley’s third-party
Tulley objects.
For the reasons that follow, CDK’s
motion is granted.
STANDARD OF REVIEW
Under Federal Rule of Civil Procedure 12(b)(6), the court
must accept the factual allegations in the complaint as true,
construe reasonable inferences in the plaintiff’s favor, and
“determine whether the factual allegations in the plaintiff’s
complaint set forth a plausible claim upon which relief may be
granted.”
Foley v. Wells Fargo Bank, N.A., 772 F.3d 63, 71 (1st
Cir. 2014) (internal quotation marks omitted).
A claim is
facially plausible “when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009).
BACKGROUND
During the summer of 2013, Tulley purchased a computer
system for its car dealerships known as a dealer management
system (“DMS”).
To acquire the DMS, Tulley entered into
separate contracts with two associated organizations: one
contract to obtain the computer software in June 2013 and
another contract to obtain the computer hardware and equipment
in July 2013.
First, to acquire software and services related
to the DMS, Tulley entered into a Master Services Agreement with
ADP Dealer Services, Inc. (“ADP Dealer”).
Next, to obtain the
computer networking equipment, Tulley and ADP Commercial
Leasing, LLC (“ADP Commercial”) executed an equipment lease
agreement (“Equipment Lease”).
At some point, Tulley allegedly stopped making payments and
defaulted on its obligations under both the Master Services
2
Agreement and the Equipment Lease.
Tulley became the defendant
in two separate lawsuits: (1) an action for breach of the Master
Services Agreement currently pending in federal court in New
Jersey, and (2) the instant case filed by Wells Fargo for breach
of the Equipment Lease.
I. New Jersey Action
On May 1, 2015, CDK, as successor-in-interest to ADP
Dealer, filed suit against Tulley in the United States District
Court for the District of New Jersey for breach of the Master
Services Agreement.
See CDK Glob., LLC v. Tulley Auto. Grp.,
Inc., No. 15-cv-3103-KM-JBC (D.N.J.).
Tulley filed
counterclaims in the New Jersey action alleging fraudulent
inducement, rescission, breach of contract, violation of the New
Jersey Consumer Fraud Act, and unjust enrichment.
In those
counterclaims, Tulley alleged that CDK made material
misrepresentations to induce Tulley to purchase the DMS and
enter into the Master Services Agreement.1
CDK moved to dismiss
Tulley’s counterclaims, and, with the exception of the
1
As CDK is successor-in-interest to ADP Dealer, the court,
for simplicity, refers to any representations made by ADP Dealer
and its employees as representations made by CDK and its
employees.
3
rescission claim, the district court denied CDK’s motion.
CDK
Glob., LLC v. Tulley Auto. Grp., Inc., No. 15-cv-3103-KM-JBC,
2016 WL 1718100, at *7 (D.N.J. Apr. 29, 2016).
II. New Hampshire Action
At some point, Wells Fargo acquired ADP Commercial’s rights
under the Equipment Lease.2
In April 2016, Wells Fargo filed
this lawsuit for breach of the Equipment Lease in superior
court, alleging that Tulley defaulted on the Equipment Lease
after making 27 of 60 monthly payments.
Wells Fargo alleged
that Tulley still owed $84,310.69 under the Equipment Lease.
Tulley removed the case to this court and then sought to
transfer the case to the United States District Court for the
District of New Jersey.
See doc. no. 8.
The court denied
Tulley’s motion, concluding that the New Jersey and New
Hampshire actions involved two separate contracts containing
different terms and warranties, and Tulley had not explained how
its liability under the Equipment Lease would be affected by the
outcome of the New Jersey action.
See doc. no. 16 at 13 and
n.7.
2
Although not entirely clear from the pleadings, ADP
Commercial apparently transferred the Equipment Lease to General
Electric Capital Commercial, Inc. (“GE”), and Wells Fargo later
acquired the Equipment Lease from GE.
4
Shortly thereafter, Tulley filed a third-party complaint in
the New Hampshire action against CDK, alleging one count of
fraudulent inducement.
See doc. no. 18.
Tulley alleges that
CDK made material misrepresentations regarding the DMS to induce
Tulley to enter into the Equipment Lease—the same misrepresentations that induced Tulley to sign the Master Services Agreement.
In its third-party complaint, Tulley seeks “indemnification
damages” for any amount the court finds it must pay Wells Fargo
under the Equipment Lease.
Id. at 22.
In May 2017, Wells Fargo and Tulley notified the court that
they had settled their claims, leaving Tulley’s third-party
claim against CDK as the only claim remaining in the case.
CDK
now moves to dismiss the third-party claim.
DISCUSSION
CDK raises several arguments in support of its motion to
dismiss Tulley’s third-party complaint.
In particular, CDK
contends that Tulley’s fraudulent inducement claim is not a
proper third-party claim under Federal Rule of Civil Procedure
14.
Further, CDK argues that Tulley’s third-party complaint
fails to state a viable common-law claim for indemnification
under either New Hampshire or New Jersey law.
3
The court agrees.3
Because the court grants CDK’s motion on those grounds, it
does not address the other arguments CDK raises in its motion.
5
Under Rule 14(a), a defendant may bring a third-party
complaint against a non-party who is or may be liable to the
defendant for all or part of the plaintiff’s original claim.
Fed. R. Civ. P. 14(a)(1).
“A third-party claim may be asserted
under Rule 14(a)(1) only when the third party’s liability is in
some way dependent on the outcome of the main claim or when the
third party is secondarily liable to the defending party.”
6
Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal
Practice & Procedure § 1446 (3d ed. 2010).
Claims for
indemnification, contribution, and breach of express or implied
warranty are examples of “secondary or derivative liability.”
Id.
Rule 14(a) “does not allow the defendant to assert a
separate and independent claim even though the claim arises out
of the same general set of facts as the main claim.”
Davis v.
Prot. One Alarm Monitoring, Inc., No. CIV.A. 03-40195-FDS, 2005
WL 3728711, at *6 (D. Mass. Nov. 2, 2005) (quoting United States
v. Olavarrieta, 812 F.2d 640, 643 (11th Cir. 1987)).
Rather, a
third-party complaint must depend “at least in part upon the
resolution of the primary lawsuit.
Its relation to the original
complaint is thus not mere factual similarity but logical
dependence.”
Owen Equip. & Erection Co. v. Kroger, 437 U.S.
365, 376 (1978) (internal citation omitted).
6
Tulley’s third-party complaint does not satisfy Rule 14(a).
Tulley alleges that CDK employees made fraudulent representations to induce Tulley to enter into the Equipment Lease.
That
tort claim is in no way dependent on Wells Fargo’s original
breach of contract claim; whether CDK is liable for the alleged
fraud does not depend on whether Tulley breached the Equipment
Lease.
Indeed, CDK’s liability will not be affected by the
outcome of Wells Fargo’s breach of contract claim.
As such,
Tulley’s fraudulent inducement claim is not a proper third-party
claim under Rule 14.
See, e.g., Deman Data Sys., LLC v.
Schessel, No. 8:12-cv-2580-T-24 EAJ, 2014 WL 408443, at *5-6
(M.D. Fla. Feb. 3, 2014) (dismissing third-party claim for fraud
in the inducement that was not dependent on underlying claim for
enforcement of promissory notes); U.S. Distributors, Inc. v.
Block, No. 09-21635-CIV, 2010 WL 337669, at *3-4 (S.D. Fla. Jan.
22, 2010) (striking third-party claim for fraud in the
inducement that was independent from main breach of contract
action, even though they arose out of the same transaction);
Leasetec Corp. v. Inhabitants of Cty. of Cumberland, 896 F.
Supp. 35, 38-41 (D. Me. 1995) (dismissing lessee’s third-party
complaint against computer equipment supplier for failure to
provide proper equipment because third-party claims were not
dependent on underlying breach of contract claim for unpaid
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lease payments).
Moreover, the fraudulent inducement claim does not
plausibly allege that CDK would be secondarily liable to Tulley
in the event that Tulley is found liable to Wells Fargo for
breaching the Equipment Lease.
See Davis, 2005 WL 3728711, at
*6 (“The purpose of Rule 14 is to enable the defendant ‘to
transfer to the third-party defendant the liability asserted
against him by the original plaintiff.’” (quoting 6 Charles Alan
Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice &
Procedure § 1446 (2d ed. 1990)).
Though Tulley frames the
third-party complaint as one for common-law indemnification, it
does not state a valid indemnification claim under either New
Hampshire or New Jersey law.4
Under New Hampshire law, the right to indemnity exists:
“(1) where the indemnitee’s liability is derivative or imputed
by law; (2) where an implied duty to indemnify exists; or (3)
where there is an express duty to indemnify.”
Gray v. Leisure
Life Indus., 165 N.H. 324, 327 (2013) (internal quotation marks
omitted).
Tulley must rely on one of the first two types of
indemnification, as its third-party complaint does not allege
4
Because, as discussed below, Tulley’s indemnification
claim fails under either New Hampshire or New Jersey law, the
court does not address the parties’ dispute over which state’s
substantive law applies to Tulley’s third-party complaint. See
Lambert v. Kysar, 983 F.2d 1110, 1114 (1st Cir. 1993).
8
that CDK expressly agreed to indemnify Tulley.
The fraudulent
inducement claim, however, does not fall into the first
category, which “typically occurs in tort actions ‘where one
who, without active fault on his part, has been compelled by a
legal obligation to pay an injured party for injuries caused by
active fault of another.’”
Id. at 328 (quoting Morrissette v.
Sears, Roebuck & Co., 114 N.H. 384, 387 (1974)).
And, with
respect to the second category, the claim does not fall within
the limited circumstances where the New Hampshire Supreme Court
has recognized an implied right to indemnification.
See id.;
see also Johnson v. Capital Offset Co., No. 11-cv-459-JD, 2013
WL 5406619, at *8 (D.N.H. Sept. 25, 2013) (“Under New Hampshire
law, a right to indemnification is rarely implied.”).
The court
has found no New Hampshire cases suggesting that a defendant in
a breach of contract action such as this has a common-law right
to indemnification.
Tulley’s indemnification claim fares no better under New
Jersey law.
In New Jersey, common-law indemnification is
available “to a person who is not at fault, but has become
responsible in tort for the conduct of another.”
Ronson v.
Talesnick, 33 F. Supp. 2d 347, 357 (D.N.J. 1999) (emphasis
added) (citing Adler’s Quality Bakery, Inc. v. Gaseteria, Inc.,
32 N.J. 55, 59-60, 159 A.2d 97 (1960)).
9
“Common law indemnity
is a means of restitution to be used by one tortfeasor against
another, and not when the third party plaintiff’s liability is
based on a breached contract between it and the original
plaintiff.”
Mobile Dredging & Pumping Co. v. City of
Gloucester, No. Civ. 04-4624 (JBS), 2005 WL 1876080, at *4
(D.N.J. Aug. 4, 2005).
“There is no New Jersey precedent that
proposes a party sued for breach of contract can exercise the
benefit of common law indemnity to recover from a third party
its losses associated with that contractual breach.”
Id.
Here, Wells Fargo sued Tulley for breach of contract, not
in tort.
New Jersey common law does not provide Tulley with a
right to seek indemnification from CDK in this breach of
contract action.
In a last-ditch effort to save its third-party complaint,
Tulley suggests that its fraudulent inducement claim seeks
contribution from CDK because the parties are jointly liable to
Wells Fargo.
See doc. no. 36-2 at 4-5.
[I]ndemnity is distinguished from contribution
because, whereas indemnity shifts the entire burden of
loss from one tortfeasor who has been compelled to pay
it, to another whose act of negligence is the primary
cause of the injured party’s harm, contribution is
partial payment made by each or any of jointly or
severally liable tortfeasors who share a common
liability to an injured party.
Gray, 165 N.H. at 330 (internal quotation marks omitted).
10
Contribution claims deal with liability among joint tortfeasors,
and the court has found no support for the notion that either
New Hampshire or New Jersey recognizes a right to contribution
in this breach of contract action.
Cf. RSA 507:7-f (New
Hampshire statute establishing a right of contribution among
joint tortfeasors); N.J. Stat. Ann. § 2A:53A-2 (New Jersey
statute establishing that the “right of contribution exists
among joint tortfeasors”).
Because Wells Fargo’s original claim
against Tulley sounds in contract, not tort, CDK and Tulley
cannot plausibly be joint tortfeasors in the underlying action.
In sum, Tulley’s third-party complaint asserts a tort claim
that is separate and independent from Wells Fargo’s breach of
contract action.
Accordingly, Tulley’s impleader action against
CDK cannot survive under Rule 14.5
CONCLUSION
For the foregoing reasons, CDK’s motion to dismiss Tulley’s
third-party complaint (doc. no. 34) is GRANTED.
Tulley’s third-
party complaint (doc. no. 18) is DISMISSED without prejudice.
In light of that ruling, CDK’s motion to stay discovery (doc.
5
The court notes that Tulley could have filed a
counterclaim against CDK in the New Jersey action for damages
caused by CDK’s alleged fraud in inducing Tulley to enter into
the Equipment Lease. See Fed. R. Civ. P. 13. In fact, Tulley
brought a nearly identical counterclaim in New Jersey, alleging
that CDK fraudulently induced Tulley to enter into the Master
Services Agreement based on the same misrepresentations.
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no. 50) and Tulley’s motions to extend deadlines (doc. no. 51)
and transfer the case (doc. no. 53) are DENIED as moot.
SO ORDERED.
__________________________
Landya McCafferty
United States District Judge
September 1, 2017
cc:
Paul M. DeCarolis, Esq.
Matthew Joseph Delude, Esq.
Steven J. Dutton, Esq.
Henry Klementowicz, Esq.
Mark Miller, Esq.
Regina S. Murphy, Esq.
Thomas J. Pappas, Esq.
Anthony Sculimbrene, Esq.
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