Atrion Networking Corp v. Marble Play, LLC

Filing 11

OPINION AND ORDER granting in part and denying in part 3 Motion to Dismiss for Failure to State a Claim; denying 3 Motion to Dismiss for Lack of Jurisdiction. So Ordered by Chief Judge William E. Smith on 5/8/14. (Jackson, Ryan)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
___________________________________
)
ATRION NETWORKING CORP.,
)
)
Plaintiff,
)
)
v.
)
C.A. No. 14-032 S
)
MARBLE PLAY, LLC,
)
)
Defendant.
)
___________________________________)
OPINION AND ORDER
WILLIAM E. SMITH, Chief Judge.
I.

Introduction
Atrion

Networking

information
breach

of

technology
contract,

Corp.

(“Atrion”),

services

fraud

and

firm,

has

a

Rhode

brought

misrepresentation,

Island

claims
and

for

unjust

enrichment against Marble Play, LLC (“Marble Play”), stemming
from Atrion’s design of a website for Marble Play.

Marble Play

has filed the instant Motion to Dismiss (ECF No. 3), contending
that:

(1)

the

amount

in

controversy

is

insufficient

to

establish federal subject matter jurisdiction; (2) the Complaint
fails to state a claim because the fraud allegations are not
pled with particularity; and (3) the Court should dismiss this
action in favor of a lawsuit initiated by Marble Play in the
Southern District of New York (the “New York Suit”).

1

In the

alternative, Marble Play asks that this matter be stayed pending
the outcome of the New York Suit.
For

the

reasons

that

follow,

the

GRANTED IN PART and DENIED IN PART.

Motion

to

Dismiss

is

The claims for breach of

contract and unjust enrichment may proceed; the claim for fraud
and misrepresentation is DISMISSED WITHOUT PREJUDICE; and the
Court declines to dismiss or stay this matter in favor of the
New York Suit.
II.

Factual Background1
In 2007, Shazamm, a Providence-based website design firm,

began negotiating with Marble Play for the design of Marble
Play’s website.

(Compl. ¶ 6.)

Shortly thereafter, Atrion

hired the Shazamm employees responsible for the project, with
the understanding that those employees would continue to perform
work for Marble Play.
(the

“SOW”),

Marble

(Id.)
Play

Pursuant to a statement of work

agreed

to

pay

an

initial

fee

of

$42,000, then make additional monthly payments as work on the
website progressed.

(Id. at ¶ 7.)

In total, Atrion billed

Marble Play for $140,000 worth of services, and Marble Play paid
some $131,000.

(Id. at ¶ 10.)

When Atrion completed its work in 2009, Marble Play refused
to pay the remaining balance of approximately $9,000, claiming

1

The facts are summarized from the Complaint (ECF No. 1)
and are presumed to be true for purposes of this motion.
2

that it was unsatisfied with the quality of the website.
at ¶¶ 11-12.)

Throughout 2011, Atrion undertook to remedy the

deficiencies that Marble Play had identified.
During

this

(Id.

time,

Atrion

alleges,

(Id. at ¶ 15.)

Marble

Play

demanded

functionality and features that went far beyond the scope of the
SOW.

(Id. at ¶ 16.)

For example, Marble Play asked for a

Facebook-like social networking feature that would have required
extensive resources to create.

(Id. at ¶ 17.)

Principals at both companies met in an attempt to resolve
the dispute.
(“Hebert”),
$215,000.

In these negotiations, Atrion’s CEO, Tim Hebert
quoted

the

social

(Id. at ¶ 20.)

networking

design

costs

at

Philip Lajaunie (“Lajaunie”), Marble

Play’s CEO, rejected this quote, and complained about perceived
failings in Atrion’s work.

(Id. at ¶¶ 20-21.)

Atrion alleges

that Lajaunie lodged these complaints in order to extract a
lower price for the social networking functions.
The

parties

ultimately

agreed

that

Atrion

(Id. at ¶ 21.)

would

design

website with the social media functions for $60,000.
23.)

Marble

Play

refused

to

sign

a

written

the

(Id. at ¶

contract,

but

represented to Atrion that it was holding the $60,000 in escrow.
(Id.

at

¶

24.)

Atrion
Play

alleges

representations,

Marble

never

additional work.

(Id. at ¶ 25.)

3

that,

intended

despite
to

pay

these

for

the

During

the

period

that

Atrion

was

designing

the

new

website, between approximately May 2012 and September 2013, the
parties’

relationship

became

increasingly

antagonistic.

The

Complaint suggests that Marble Play’s demands were excessive and
often mercurial, and that Lajaunie was abusive toward Atrion
employees.

(Id. at ¶¶ 27-32.)

In September 2013, Atrion delivered the final product to
Marble Play.

(Id. at ¶ 33.)

It represented some 9,100 man

hours which, if billed at standard rates, would have been valued
at over $1,000,000.
refused to pay.

(Id. at ¶ 34.)

Even then, Marble Play

Marble Play offered various explanations for

its tight fistedness, including that the website had bugs and
that certain features were missing.

(Id. at ¶ 35.)

Atrion

dismisses these explanations as pretext and claims boldly that
Marble Play never had any intention of paying for the redesigned
website and acted in bad faith in inducing Atrion to perform the
additional
alleges,

work.
Marble

enrichment.

(Id.
Play

at

¶¶

37-38.)

received

some

As

a

result,

$500,000

in

Atrion
unjust

(Id. at ¶ 39.)

This suit was filed on January 16, 2014.

A day later,

Marble Play and Global Sports Links, LLC (“Global Sports Links”)
filed the New York Suit in federal district court in New York,

4

naming as defendants Atrion, Shazamm, Hebert and Dana DiPaolo.2
In the New York Suit, Marble Play seeks damages and injunctive
relief

based

services.

on

Atrion’s

allegedly

deficient

website

design

The District Judge in the Southern District of New

York granted a request for indefinite adjournment of deadlines
in the New York Suit based on the pending matter in this Court.
See S.D.N.Y. C.A. No. 14-361, ECF No. 10.
III. Discussion
A.

Amount in Controversy

“The district courts shall have original jurisdiction of
all civil actions where the matter in controversy exceeds the
sum

or

value

of

$75,000

different states.”

.

.

.

and

is

between

28 U.S.C. § 1332(a).

citizens

of

“The rule governing

dismissal for want of jurisdiction . . . is that, unless the law
gives

a

different

rule,

the

sum

claimed

by

the

controls if the claim is apparently made in good faith.

plaintiff
It must

appear to a legal certainty that the claim is really for less
than the jurisdictional amount to justify dismissal.”

St. Paul

Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289 (1938).
“This rule strikes a compromise between the requirement that
federal

courts

not

exceed

the

limited

grant

of

jurisdiction

. . . and the public policy imperative that courts not engage in
2

It is not immediately clear, but it appears that Global
Sports Links is an affiliate of Marble Play and that Dana
DiPaolo is an employee of Atrion.
5

an overly-detailed inquiry regarding preliminary questions of
jurisdiction that could amount to a mini trial on the merits.”
Chapman v. Anthem Health Plans of N.H., Inc., Civil No. 03-CV480-PB, 2005 U.S. Dist. LEXIS 6290, at *2-3 (D.N.H. April 8,
2005).
face

of

The amount in controversy should be decided from the
the

complaint.

Coventry

Sewage

Assocs.

v.

Dworkin

Realty Co., 71 F.3d 1, 6 (1st Cir. 1995).
Atrion’s allegations stem from Marble Play’s alleged breach
of the parties’ oral agreement pursuant to which Atrion agreed
to redesign Marble Play’s website to include social networking
functions for $60,000.

(Compl. ¶¶ 23-25.)

Atrion suggests that

this fee was a “steep discount” from Atrion’s standard rates,
but makes no claim that the contract at issue was for a figure
greater than $60,000.
Of

course,

insufficient

to

(See id. at ¶ 23.)

breach
trigger

of

a

$60,000

federal

subject

contract,
matter

alone,

is

jurisdiction.

Nevertheless, Atrion is entitled to plead in the alternative.
See

Fed.

R.

Civ.

P.

8(d)(2)

(“If

a

party

makes

alternative

statements, the pleading is sufficient if any one of them is
sufficient.”); see also Hasbro, Inc. v. Mikohn Gaming Corp., 491
F. Supp. 2d 256, 264 (D.R.I. 2007) (“It is of course true that
parties are allowed to pursue alternative, even inconsistent,
claims . . . .”).

If Atrion’s Complaint is to remain in federal

6

court, it must have a legitimate claim to damages in excess of
$75,000.
Atrion
vacuum.

has

not

That

claim

pled
is

its

breach

pled

in

of

contract

concert

with

claim
a

fraud

in

a

and

misrepresentation claim, and in the alternative with an unjust
enrichment claim.3

While the Court finds, for reasons that will

be discussed in greater detail below, that Atrion has not pled
its

fraud

and

misrepresentation

claims

with

sufficient

particularity, that has no bearing on the validity of Atrion’s
unjust enrichment claim which, independently, is sufficient in
dollar amount to confer federal subject matter jurisdiction.
Where,
relief,

as

such

here,
as

“the

plaintiff

disgorgement

or

seeks

equitable

restitution,

‘it

monetary
is

well

established that the amount in controversy is measured by the
value of the object of the litigation’ – that is, the amount of
equitable monetary relief sought.”
3

Ervin v. Sprint Commc’ns

Though not immediately relevant, Atrion would also be
entitled to aggregate certain of its claims for jurisdictional
amount purposes.
See Roth v. Bierman, Case No. l:10-CV-239,
2010 U.S. Dist. LEXIS 62443, at *11-12 (N.D. Ohio June 23, 2010)
(“A plaintiff can aggregate damages from separate claims against
a defendant to meet the amount in controversy requirement.”).
Nevertheless, “when a [p]laintiff asserts two alternate theories
of recovery arising from the same transaction, the court cannot
aggregate the damages arising from the alternate claims.”
Id.
at 12.
Here, Atrion would be entitled to aggregate its breach
of contract and fraud claims, but not its breach of contract and
unjust enrichment claims, as those are pled in the alternative.
Of course, aggregation is not necessary in this case because the
unjust enrichment claim is independently sufficient to meet the
amount in controversy requirement.
7

Co., 364 F. App’x 114, 117 (5th Cir. 2010) (quoting Hunt v.
Wash. State Apple Adver. Comm’n, 432 U.S. 333, 347 (1977)).
Absent

bad

faith

on

the

part

of

the

plaintiff

seeking

such

relief, or meaningful evidence or legal argument suggesting that
the amount in controversy is in fact less, the amount sought by
the plaintiff controls for purposes of assessing federal subject
matter jurisdiction.

See id.

Marble Play relies principally on the notion that “[i]n an
unjust

enrichment

realized

and

case,

retained

the

by

improvements provided.”

inquiry

the

focuses

defendant

as

on
a

the

result

benefit
of

the

Aladdin Elec. Assocs. v. Town of Old

Orchard Beach, 645 A.2d 1142, 1145 (Me. 1994).

Marble Play

contends that the website that Atrion designed was so defective
that its value to Marble Play was negligible, and certainly
below

$75,000.

misplaced.

But,

There,

the

the

reliance

Supreme

on

Judicial

Aladdin
Court

Electric
of

Maine

is
was

called upon to parse state law with respect to the sufficiency
of damages awarded by a trial court to a contractor who had not
been compensated after performing work for a local municipality.
Atrion’s ability to recover on an unjust enrichment theory may
ultimately depend on a fact finder’s assessment of the value of
the

website

computation

to

Marble

of

damages

Play.
at

But
issue

8

the

type

of

in

Aladdin

post-verdict
Electric

is

irrelevant to a determination of the amount in controversy for
purposes of federal subject matter jurisdiction.4
Atrion has alleged that Marble Play was unjustly enriched
by at least $500,000 as a result of Atrion’s website design work
and Marble Play’s subsequent refusal to pay for it.
39.)

(Compl. ¶

Assessing the amount in controversy from the face of the

Complaint, as the Court must, see Coventry Sewage, 71 F.3d at 6,
and absent any suggestion that the $500,000 figure was not made
in good faith, see St. Paul Mercury Indem. Co., 303 U.S. at 28889, the Court concludes that Atrion has pled facts sufficient to
confer federal subject matter jurisdiction.

4

After oral argument, Marble Play sought leave to file
supplemental authority supporting its position with respect to
the calculation of unjust enrichment damages (ECF No. 9).
The
Court has granted this motion in a separate text order, but
finds the authority unpersuasive.
As an initial matter, the
cited Connecticut Supreme Court case, Hartford Whalers Hockey
Club v. The Uniroyal Goodrich Tire Co., 649 A.2d 519 (Conn.
1994), falls victim to the same flaw as Aladdin Electric, as the
post-verdict sufficiency of an unjust enrichment award under
state law is irrelevant to the sufficiency of a plaintiff’s
unjust enrichment claim for purposes of federal subject matter
jurisdiction.
What is more, the cited provisions from the
Restatement (Third) of Restitution and Unjust Enrichment,
instructing reliance on the contract price in determining an
entitlement to unjust enrichment proceeds, prematurely presumes
that Marble Play as an “innocent recipient.”
See Restatement
(Third) of Restitution and Unjust Enrichment: Innocent Recipient
§ 50 (2011).
Given the nature of Atrion’s allegations, the
Court declines to presume at this early stage that Marble Play
is an innocent recipient. See id. at §§ 50, 51 (discussing cost
to the claimant as the focus for unjust enrichment damages where
the defendant’s wrongful acts caused the unjust enrichment).
9

B.

The Particularity of the Fraud Claims

Marble

Play

moves

to

dismiss

Atrion’s

fraud

and

misrepresentation claims on grounds that the claims are not pled
with sufficient particularity and are pled only “on information
and

belief.”

“[T]o

survive

a

motion

to

dismiss

under

Rule

12(b)(6), a plaintiff must ‘plead[] factual content that allows
the court to draw the reasonable inference that the defendant is
liable

for

Castillo,

the

590

misconduct
F.3d

31,

48

alleged.’”
(1st

Cir.

Sanchez
2009)

v.

Pereira-

(alteration

in

original) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
The complaint must “contain sufficient factual matter . . . to
state a claim to relief that is plausible on its face.”

Iqbal,

556 U.S. at 678 (citations omitted) (internal quotation marks
omitted).
Heightened
claims.

R.

requirements

apply

to

fraud-based

“In alleging fraud . . . a party must state with

particularity
Fed.

pleading

the

Civ.

circumstances
P.

9(b).

constituting
“What

fraud

constitutes

.

.

.

.”

sufficient

particularity necessarily depends upon the nature of the case
and should always be determined in the light of the purpose of
the rule to give fair notice to the adverse party and to enable
him to prepare his responsive pleading.”

Women’s Dev. Corp. v.

City of Central Falls, 764 A.2d 151, 161 (R.I. 2001) (quoting 1
Kent, R.I. Civ. Prac. § 9.2 at 92 (1969)); see also Haft v.
10

Eastland Fin. Corp., 755 F. Supp. 1123, 1126-27 (D.R.I. 1991).
A plaintiff may not circumvent the requirements of Rule 9 by
veiling its breach of contract allegations as more nefarious but
unsubstantiated

fraud,

inducement claims.

misrepresentation,

and

fraudulent

See, e.g., All-Tech Telecom, Inc. v. Amway

Corp., 174 F.3d 862, 865 (7th Cir. 1999); Carlucci v. OwensCorning Fiberglass Corp., 646 F. Supp. 1486, 1490-91 (E.D.N.Y.
1986)

(“The

allegations

contained

in

the

complaint

are

pled

almost entirely upon ‘information and belief’ and are nothing
but conclusory . . . a claim predicated upon a breach of a
contractual arrangement cannot be converted into a fraud claim
simply by allegations that a defendant never intended to adhere
to its obligations under the agreement.”).
A

review

of

the

Complaint

reveals

a

dearth

of

particularized allegations relating to fraud, misrepresentation,
or

fraudulent

inducement.

Indeed,

the

allegations

are

of

precisely the sort that the Carlucci court cautioned against in
that they are stated in vague, unsubstantiated terms and are
generally premised “on information and belief.”5

5

See, e.g.: “Although it did not know it at the time, it is
now clear to Atrion that Marble Play did not intend ever to
compensate Atrion for the additional work . . . .”
(Compl. ¶
25.)
“On information and belief, Marble Play never had any
intention of paying Atrion for the redesign of its website to
include social networking functionality.”
(Id. at ¶ 36.)
“On
information and belief, Marble Play acted in bad faith by making
false and misleading statements in order to induce Atrion to
11

As Atrion correctly suggested at oral argument, “[m]alice,
intent, knowledge, and other conditions of a person’s mind may
be alleged generally.”

See Fed. R. Civ. P. 9(b).

But, as the

Carlucci court recognized, it is insufficient to merely attempt
to convert a claim for breach of contract to one for fraud by
founding it upon nothing more than information and belief that
the defendant never intended to perform.
Because

Atrion

misrepresentation

has

claim

claim must be dismissed.

not

with

alleged

sufficient

its

fraud

and

particularity,

this

Nevertheless, the claim is DISMISSED

WITHOUT PREJUDICE; Atrion may file an Amended Complaint setting
forth its claims with greater particularity, or may proceed with
discovery on its remaining claims and make a determination as to
whether the fraud claims are sufficiently supported to bring
them at a later time.
C.

Dismissing or Staying the Case; the New York Suit

Atrion filed this suit on January 16, 2014.

A day later,

Marble Play filed the New York Suit in federal district court in
Manhattan.

Now, Marble Play asks the Court to dismiss this suit

in favor of the New York Suit or, alternatively, to stay the
case

pending

the

outcome

of

the

New

York

Suit.

The

Court

for

which

declines to do either for the reasons that follow.

perform web development services for Marble Play
Marble Play never intended to pay.” (Id. at ¶ 37.)
12

Where “two suits involve the same issues and truly create
duplicate litigation, the first-filed is generally preferred.”
Nortek, Inc. v. Molnar, 36 F. Supp. 2d 63, 69 (D.R.I. 1999).
But, there are exceptions.

Special circumstances sufficient to

overcome the first-filed rule have been found to exist “where a
party

has

won

the

race

to

the

courthouse

by

misleading

his

opponent into staying his hand in anticipation of negotiation;
or

by

reacting

to

notice

of

imminent

filing

sprinting to the courthouse the same day.”

by

literally

Veryfine Prods.,

Inc. v. Phlo Corp., 124 F. Supp. 2d 16, 22 (D. Mass. 2000).
In

assessing

whether

special

circumstances

are

present,

courts look to the content of correspondence between the parties
and the length of time between notice of impending litigation
and the filing of a lawsuit.
Supp.

2d

279,

283

(D.R.I.

See Feinstein v. Brown, 304 F.

2004);

The

Holmes

Group,

Inc.

v.

Hamilton Beach/Proctor Silex, Inc., 249 F. Supp. 2d 12, 16 (D.
Mass. 2002).
inquiry.

Two sets of correspondence are relevant to this

The first is a set of two letters exchanged between

the parties’ attorneys.
Play’s

attorney

to

The first letter was sent from Marble

Atrion’s

attorney

on

November

14,

2013.

Therein, Marble Play suggests that the website was defective,
demands

payment

from

Atrion

of

$3

million

and

states

that

“[s]hould we proceed further to litigation and prevail, Marble
Play would be able to recover that as well as punitive damages.”
13

(See Ex. 4 to Def.’s Mot. to Dismiss, ECF No. 3-1.)

A response

to this letter was sent from Atrion’s attorney to Marble Play’s
attorney

on

December

16,

2013,

indicating

that

Atrion

was

investigating the issues and expected to be able to respond the
following week.

(See id. at Ex. 5.)

The second set of correspondence is a series of emails
between the same two attorneys.

(See id. at Ex. 6.)

In these

emails, very little of substance is discussed and the attorneys
are

generally

trying

discuss the case.

to

find

a

mutually

convenient

time

to

The most important of these emails is one

that Atrion’s counsel sent early in the morning on January 16,
2014 asking if Marble Play’s counsel was available for a call
the

next

day

to

discuss

the

matter.

Before

Marble

Play’s

attorney could respond to the email, Atrion’s counsel filed the
action in this Court.
Marble Play’s entreaty that the Court set aside the firstfiled

rule

is

problematic

for

two

reasons.

As

an

initial

matter, the correspondence at issue does not suggest that Atrion
misled Marble Play into believing that settlement discussions
were

ongoing

(or

even

likely

to

begin).

The

email

correspondence appears to be nothing more than two busy lawyers
attempting to find time to schedule a telephone call.

And the

letter that Atrion’s attorney sent to Marble Play’s attorney

14

promises that Atrion would investigate the issues related to the
lawsuit and respond at a later time.
On this point, Marble Play relies principally on Nortek.
There, a judge of this Court set aside the first-filed rule
after he found that the party that had filed first had misled
opposing

counsel

by

asking

that

opposing

counsel

send

him

certain materials and promising to discuss a resolution once he
received the materials in order to delay opposing counsel from
filing

his

underlying

own

suit.

Nortek,

correspondence

in

36

this

F.

Supp. 2d

case

is

at

of

70.

an

The

entirely

different ilk and cannot fairly be read as an attempt by Atrion
to mislead Marble Play into staying its hand.
Second, a full two months passed between Atrion’s receipt
of the November 14 letter and the filing of its lawsuit.
substantial

delay

means

that

it

cannot

be

said

that

“literally sprint[ed] to the courthouse the same day.”

This
Atrion

Veryfine

Prods., 124 F. Supp. 2d at 22.
Marble Play’s final pitch asks the Court to dismiss or stay
the matter in favor of the New York Suit in order to avoid
wasting judicial

resources or producing inconsistent results.

See Cianbro Corp. v. Curran-Lavoie, Inc., 814 F.2d 7, 11 (1st
Cir.

1987).

This

argument

is

not

compelling.

As

noted

previously, the New York Suit has been indefinitely adjourned
pending

the

outcome

of

the

Motion
15

to

Dismiss

in

this

case.

Thus, it cannot be said that both cases are proceeding such that
judicial resources are being wasted; nor is there the potential
for inconsistent results.6
IV.

Conclusion
For the reasons discussed, Marble Play’s Motion to Dismiss

is GRANTED IN PART and DENIED IN PART.
misrepresentation

claim

is

DISMISSED

Atrion’s fraud and

WITHOUT

PREJUDICE

and

Atrion may file an Amended Complaint curing the deficiencies
identified

herein,

or

it

may

proceed

with

discovery

on

the

remaining counts and defer on the fraud claim until a later
time.

The Motion to Dismiss is DENIED with respect to Atrion’s

claims for breach of contract and unjust enrichment, and DENIED
with respect to the request to dismiss or stay the case in favor
of the New York Suit.
IT IS SO ORDERED.

William E. Smith
Chief Judge
Date: May 8, 2014

6

Marble Play suggests that because Shazamm and Global
Sports Links are parties to the New York Suit, but not this one,
the Court should dismiss or stay the case because those parties
are indispensable to the resolution of the dispute.
It is
unclear, however, whether those parties have any stake in this
litigation or are in any way relevant to the contractual
relationship between Atrion and Marble Play. As such, the Court
declines to dismiss or stay the case on these grounds.
16