Jack Tyler Engineering Company, Inc. v. Colfax Corporation

Filing 79

ORDER granting 69 Motion to Dismiss. Signed by Judge S. Thomas Anderson on 12/19/11. (Anderson, S.)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TENNESSEE
WESTERN DIVISION
______________________________________________________________________________
JACK TYLER ENGINEERING
COMPANY, INC.,

)
)
)
Plaintiff,
)
)
v.
)
No. 10-2373-STA
)
COLFAX CORPORATION,
)
)
Defendant.
)
______________________________________________________________________________
ORDER GRANTING DEFENDANT’S MOTION TO DISMISS
______________________________________________________________________________
Before the Court is Defendant Colfax Corporation’s Motion to Dismiss Count III of the First
Amended Complaint (D.E. # 69) filed on May 18, 2011. Plaintiff Jack Tyler Engineering Company,
Inc. has filed a response in opposition. For the reasons set forth below, Defendant’s Motion is
GRANTED.
BACKGROUND
Plaintiff alleges that Defendant is engaged in the business of selling various types of
industrial equipment and that since 2001 Plaintiff had sold Defendant’s products under the terms of
an exclusive distributorship agreement for West Tennessee, North Mississippi, and the state of
Arkansas. (First Am. Compl. ¶¶ 2, 5.) Despite its promise that the parties would have a formal,
written agreement in place by the end of 2004, Defendant never fulfilled the promise. (Id. ¶ 6.)
Plaintiff alleges that Defendant misrepresented its intentions in order to induce Plaintiff to distribute
Defendant’s products and develop a market for the products in the region. (Id.) Defendant
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unilaterally terminated the distributorship agreement without cause effective October 15, 2007. (Id.
¶ 7.) Plaintiff’s First Amended Complaint has alleged (1) violations of the Tennessee Retailers Act,
Tenn. Code Ann. § 47-25-1301 et seq.; (2) breach of contract; and (3) fraud.
In its Motion to Dismiss, Defendant argues that Plaintiff has failed to state its claim for fraud
with the requisite particularity. Defendant contends that Plaintiff has not sufficiently pled the
circumstances constituting the fraud, that is, when the alleged misrepresentations occurred, who
made the misrepresentations on behalf of Colfax, and in what context the misrepresentations were
made. Without these specifics, Plaintiff’s fraud claim is not stated with the particularity required
by Federal Rule of Civil Procedure 9(b). Furthermore, Defendant asserts that Plaintiff has not
alleged any facts to show that Defendant knew its representations were false when made or that
Defendant acted with the present intent not to perform as promised. Defendant argues that the other
allegations of the First Amended Complaint show that the parties conducted business for a term of
years. Accepted as true, this fact alone is inconsistent with any allegation that Defendant had no
present intent to carry out its promise. Therefore, Defendant argues that the Court should dismiss
the fraud count.
Plaintiff has responded in opposition to Defendant’s Motion to Dismiss. Plaintiff states that
its claim for fraud is based on Defendant’s promise to reduce the parties’ agreements to writing by
the end of 2004. Plaintiff points to paragraph 6 of the First Amended Complaint where Plaintiff
alleges, “Throughout the course of the relationship, Colfax promised Plaintiff that a ‘formal’
agreement reflecting the agreement between the parties would be in place by the end of 2004;

2

however, Colfax never fulfilled its promise.”1 In support of this contention, Plaintiff has attached
to the First Amended Complaint a memorandum from Jim Siebolt, Southeast Area Manager of
Colfax Pump Group, addressed to Jack Tyler, Jr., and dated November 7, 2004. See First Am.
Compl., ex. 2. Plaintiff argues that this exhibit shows the particular circumstances of Defendant’s
allegedly fraudulent misrepresentation that Defendant would reduce the parties’ agreement to writing
by the end of 2004.2 Defendant’s arguments to the contrary, Plaintiff contends that the rules of
pleading do not require Plaintiff to include more direct evidence in support of its fraud allegations.
Plaintiff argues that it has pled “sufficient circumstantial evidence” to create an inference about
Defendant’s promises to reduce the parties’ agreement to writing without the present intent to
actually do so. Finally, Plaintiff contends that dismissal of its fraud claim would deprive Plaintiff
of its alternative theory of recovery. According to Plaintiff, “[e]ither the parties had an enforceable
agreement, or Plaintiff was misled into believing the parties had one based upon Colfax’s fraudulent
representations.” Resp. in Opp’n 6. Therefore, the Court should deny Defendant’s Motion to
Dismiss.
STANDARD OF REVIEW
A defendant may move to dismiss a claim “for failure to state a claim upon which relief can
be granted” under Federal Rule of Civil Procedure 12(b)(6). When considering a Rule 12(b)(6)
motion, the Court must treat all of the well-pled allegations of the complaint as true and construe all

1

Plaintiff actually states that paragraphs 6 and 49 through 59 are “the relevant paragraphs
of Plaintiff’s First Amended Complaint for purposes of Colfax’s motion.” Resp. in Opp’n 3–4.
2

Plaintiff adds that “such representations were repeatedly made in order to induce
[Plaintiff] to continue marketing Colfax’s products in the designated territory and to develop the
market for these products.” Pl.’s Resp. in Opp’n 1. Plaintiff has not, however, offered the
particular circumstances surrounding any of these other alleged misrepresentations.
3

of the allegations in the light most favorable to the non-moving party.3 However, legal conclusions
or unwarranted factual inferences need not be accepted as true.4 “To avoid dismissal under Rule
12(b)(6), a complaint must contain either direct or inferential allegations with respect to all material
elements of the claim.”5
Under Rule 8 of the Federal Rules of Civil Procedure, a complaint need only contain “a short
and plain statement of the claim showing that the pleader is entitled to relief.”6 Although this
standard does not require “detailed factual allegations,” it does require more than “labels and
conclusions” or “a formulaic recitation of the elements of a cause of action.”7 In order to survive a
motion to dismiss, the plaintiff must allege facts that, if accepted as true, are sufficient “to raise a
right to relief above the speculative level” and to “state a claim to relief that is plausible on its face.”8
“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.”9
ANALYSIS
The Court holds that Count III of Plaintiff’s First Amended Complaint has failed to allege
3

Scheuer v. Rhodes, 416 U.S. 232, 236 (1974); Saylor v. Parker Seal Co., 975 F.2d 252,
254 (6th Cir. 1992).
4

Morgan v. Church’s Fried Chicken, 829 F.2d 10, 12 (6th Cir. 1987).

5

Wittstock v. Mark a Van Sile, Inc., 330 F.3d 899, 902 (6th Cir. 2003).

6

Fed. R. Civ. P. 8(a)(2).

7

Ashcroft v. Iqbal, 129 S. Ct. 1937, 1953, 173 L. Ed. 2d 868 (2009); Bell Atlantic Corp.
v. Twombly, 550 U.S. 544, 555, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). See also Hensley
Mfg. v. ProPride, Inc., 579 F.3d 603, 609 (6th Cir. 2009).
8

Iqbal, 129 S.Ct. at 1949-50; Twombly, 550 U.S. at 570.

9

Iqbal, 129 S.Ct. at 1949.
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a plausible claim for common law fraud. The Sixth Circuit has held that under Tennessee law the
elements of fraud or promissory fraud are as follows: (1) an intentional misrepresentation with
regard to a material fact; (2) knowledge of the misrepresentation’s falsity-that the representation was
made “knowingly” or “without belief in its truth,” or “recklessly” without regard to its truth or
falsity; (3) that the plaintiff reasonably relied on the misrepresentation and suffered damage; and (4)
that the misrepresentation relates to an existing or past fact, or if the claim is based on promissory
fraud, then the misrepresentation must embody a promise of future action without the present
intention to carry out the promise.10 In its Motion to Dismiss, Defendant argues that the First
Amended Complaint fails to plead the circumstances constituting the fraud with particularity and that
Plaintiff has not alleged facts, which would support the inference that Defendant acted without the
present intent not to perform as promised. The Court will consider each of these arguments in turn.
I.

Particularity of the Fraud
First, Defendant contends that Plaintiff has not stated its claim for fraud and the

circumstances constituting the fraud with sufficient particularity. Fed. R. Civ. P. 9(b) requires a
plaintiff to plead fraud with particularity. At a minimum plaintiff must allege “the time, place and
content of the misrepresentations; the defendant’s fraudulent intent; the fraudulent scheme; and the
injury resulting from the fraud.”11 Furthermore, “failure to plead an essential element of a claim of
fraud warrants dismissal of a claim . . . .”12 “[A] district court need not accept claims that consist

10

Shah v. Racetrac Petroleoum Co., 338 F.3d 557, 566-67 (6th Cir. 2003) (citing Stacks
v. Saunders, 812 S.W.2d 587 (Tenn. Ct. App. 1990)). See also Walker v. Sunrise Pontiac-GMC
Truck, Inc., 249 S.W.3d 301, 311 (Tenn. 2008) (defining elements of common law fraud).
11

Power & Tel. Supply Co. v. SunTrust Banks, Inc., 447 F.3d 923, 931 (6th Cir. 2006).

12

Bender v. Southland Corp., 749 F.2d 1205, 1216 (6th Cir. 1984).
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of no more than mere assertions and unsupported or unsupportable conclusions.”13 Defendant argues
that the First Amended Complaint “appears” to allege four separate misrepresentations: (1) that
Defendant would give Plaintiff exclusive rights to distribute Defendant’s products in the territory;
(2) that Defendant would pay Plaintiff commission on sales of Defendant’s products; (3) that
Defendant would not allow other companies to distribute its products in Plaintiff’s territory; and (4)
that Defendant would reduce the parties’ agreement to a written contract by the end of 2004. Mem.
in Support Mot. Dismiss 6-7. Defendant argues that Plaintiff has not alleged the time, place and
content of the fraudulent misrepresentations. In response Plaintiff has clarified that its claim for
fraud is actually based only on Defendant’s alleged promise to reduce the parties’ agreement to
writing by the end of 2004. Plaintiff cites for support exhibit 2 to the First Amended Complaint, a
letter in which Defendant’s regional manager wrote to Plaintiff’s principle, “We expect to have a
formal distributor contract that will define products, markets, account exclusions and territory by the
end of 2004.”
Accepting the allegations of the First Amended Complaint and its exhibits as true, the Court
holds that Plaintiff has not stated its claim for fraud with sufficient particularity. As an initial matter,
Plaintiff states that the basis for its fraud claim is Defendant’s alleged promise to put the
distributorship agreement in writing, while Defendant has construed the pleadings to allege this and
three other misrepresentations. In light of Plaintiff’s concession on this point, the Court will confine
its Rule 9(b) analysis to the theory that Defendant’s promise to reduce the agreement to writing by
the end of 2004 constitutes the fraud alleged in Count III. In support of the claim, Plaintiff has

13

Hagen v. U-Haul Co. of Tenn., No. 08-cv-1197, 2009 WL 211094, *7 (W.D. Tenn. Jan.
28, 2009) (quoting Sanderson v. HCA-The Healthcare Co., 447 F.3d 873, 876 (6th Cir. 2006)).
6

alleged that Jim Siebolt, Defendant’s regional manager, addressed a letter to Plaintiff on November
7, 2004, stating that Defendant “expect[ed] to have a formal distributor contract . . . by the end of
2004.” The letter also states that Defendant was in the process of realigning sales territories in the
state of Tennessee. One of the terms of the parties’ alleged agreement concerned exclusive
distributorship rights Defendant granted to Plaintiff in Tennessee and other states. Plaintiff alleges
that Defendant induced Plaintiff to develop the market for Defendant’s products in exchange for the
exclusive right to distribute the products in the territory. As a result of Plaintiff’s efforts, Defendant
earned sales in the territory and gained the benefit of a new market for its goods.
Based on these allegations, the Court holds that Plaintiff has failed to state a plausible claim
for fraud as to Defendant’s promise to reduce the distributorship agreement to writing. The
Complaint contains at best a formulaic recitation of the elements of fraud under Tennessee law.
Plaintiff’s multiple references to Defendant’s “numerous oral and written statements” fail to plead
the time, place and content of the misrepresentations constituting the fraud with any specificity. For
this reason alone, Defendant’s Motion should be granted. Even when read in the light most
favorable to Plaintiff, the Siebolt letter shows only that Siebolt “expected” a formal agreement, and
not that Siebolt made a promise of some future action. In fact, the Complaint does not even allege
whether Siebolt had authority from Defendant to promise a final agreement. The other allegations
of the Complaint further undermine the inference that Defendant made a false representation about
its intent to enter into a formal agreement. Plaintiff alleges that it had acted as Defendant’s
distributor for some years before the November 2004 letter and continued to act as Defendant’s
distributor until Defendant terminated the relationship two years later. Plaintiff has simply not pled
any facts with particularity to show that Defendant made a false promise of future conduct with
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respect to formal contract. Therefore, Defendant’s Motion to Dismiss must be granted.
II.

Defendant’s Present Intent Not to Perform
As an alternative grounds for dismissal, Defendant argues that Plaintiff has failed to allege

any facts to support its contention that Defendant made its promises to Plaintiff without the present
intent to perform as promised. “Where a claim for fraudulent inducement rests on false promises
made without the present intent to perform, or promissory fraud, the plaintiff must prove more than
a subsequent failure to keep the promise.”14 Here Plaintiff must plead facts to show that at the time
the promise was made, Defendant had no intention to carry it out. Courts applying Tennessee law
have opined that “[t]he most difficult element of this tort concerns the intent not to perform.”15
Because the Court concludes that Plaintiff has failed to state a plausible claim for fraud with the
requisite particularity, the Court need not reach this alternative argument. Therefore, Defendant’s
Motion is GRANTED.
IT IS SO ORDERED.
s/ S. Thomas Anderson
S. THOMAS ANDERSON
UNITED STATES DISTRICT JUDGE
Date: December 19, 2011.

14

Kelly v. Int’l Capital Res., Inc., 231 F.R.D. 502, 517-18 (M.D. Tenn. 2005) (citations
and quotation omitted).
15

WYCQ, Inc. v. Nat’l Music Mktg., Inc., No. 3:05-cv-0979, 2008 WL 56027, at *6 (M.D.
Tenn. Jan 3., 2008) (quoting Noblin v. Christiansen, No. M2005-01316-COA-R3-CV, 2007 WL
1574273, at *6 (Tenn. Ct. App. May 30, 2007)).
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