Sutherland Global Services, Inc. et al v. Olivedale, Inc. et al

Filing 35

ORDER GRANTING 30 Motion to Dismiss Counterclaims. Signed by Judge Sam Sparks. (td)

:

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION

SUTHERLAND GLOBAL SERVICES,
INC., SUTHERLAND HEALTHCARE
SOLUTIONS, INC.,
Plaintiffs,

1'

29 PH
3:32

CAUSE NO.:
A-17-CV-00647-SS

-vs-

OLIVEDALE, INC., 1 MOSAIC
HEALTH INC.,
Defendants.

ORDER
BE IT REMEMBERED on this day the Court reviewed the file in the above-styled cause,
and specifically Plaintiffs Sutherland Global Services, Inc. (SGS) and Sutherland Healthcare

Solutions, Inc. (SHS) (collectively, Sutherland)'s Motion to Dismiss Defendants' Counterclaims
[#30], Defendants Olivedale, Inc. (Olivedale) and

1

Mosaic Health, Inc. (Mosaic) (collectively,

Defendants)' Response [#3 1] in opposition, and Sutherland's Reply [#34] thereto.

Having

reviewed the documents, the relevant law, and the file as a whole, the Court now enters the

following opinion and orders.

Background
This is a contract dispute case related to a Master Service Agreement (MSA) executed by
SGS and

Defendants1

on March 29, 2016. Comp!. [#1-2] Ex.

1

(MSA). Under the MSA, SGS

agreed to provide services pursuant to mutually agreed upon statements of work, and Mosaic

agreed to pay for these services within 30 days of invoicing.

See

MSA at 2, 4-5. SHS, an

The parties to the MSA are SGS and Mosaic Health, Inc. The complaint alleges one or more Defendants
are doing business under the name Mosaic Health, Inc., but the briefing does not identify which defendant(s),
Olivedale and/or Mosaic, are parties to the MSA. This ambiguity need not be resolved for the purposes of this
motion.
1

I

affiliate of SGS, provided services to Defendants pursuant to numerous statements of work
agreed upon by the parties. Compi. [#1] at ¶ 9. Sutherland contends it has fully complied with
all terms and conditions

of the parties' agreement, and Defendants have breached the MSA by

failing to remit payment on 53 invoices.

Id. at

¶11

13-15, 24-31.

Sutherland provided

Defendants written notice of their alleged breach on Mach 3, 2017, and eventually terminated the
MSA on May 16, 2017, due to the unpaid invoices. Id. at ¶J 19-22.
Sutherland initiated this lawsuit on June 20, 2017, asserting a single claim for breach of
contract. Id. at ¶J 24-31. Defendants Mosaic and Olivedale initially filed separate answers on
September 12, 2017.

See

Mosaic Answer [#14]; Olivedale Answer [#15]. On January 31, 2018,

Defendants filed an amended answer to which they added counterclaims for fraudulent

inducement and negligent hiring, training, supervision, and retention.

See

Am. Answer [#28].

Sutherland moves to dismiss Defendants' counterclaims under Rule 12.

See

Mot.

Dismiss [#30]. Sutherland's motion has been fully briefed and is ripe for consideration.

Analysis
I.

Legal Standard
Federal Rule of Civil Procedure 8(a)(2) requires a complaint to contain "a short and plain

statement of the claim showing that the pleader is entitled to relief."

FED.

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

motion under Federal Rule of Civil Procedure 12(b)(6) asks a court to dismiss a complaint for
"failure to state a claim upon which relief can be granted." FED. R. Civ. P. 12(b)(6). To survive a

motion to dismiss, the plaintiff must plead sufficient facts to state a claim for relief that is
facially plausible. Ashcrofi

v.

Iqbal,

556 U.S. 662, 678 (2009);

Bell

Atl. Corp.

v.

Twombly, 550

U.S. 544, 570 (2007). "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

2

misconduct alleged." Iqbal, 566 U.S. at 678. Although a plaintiff's factual allegations need not
establish the defendant is probably liable, they must establish more than a "sheer possibility" a
defendant has acted unlawfully. Id. Determining plausibility is a "context-specific task," and

must be performed in light of a court's "judicial experience and common sense." Id. at 679.
In deciding a motion to dismiss under Rule 1 2(b)(6), a court generally accepts as true all

factual allegations contained within the complaint. Leatherman

v.

Tarrant Narcotics Intelligence

& Coordination Unit, 507 U.S. 163, 164 (1993). However, a court is not bound to accept legal

conclusions couched as factual allegations. Papasan

v.

Allain, 478 U.S. 265, 286 (1986).

Although all reasonable inferences will be resolved in favor of the plaintiff, the plaintiff must
plead "specific facts, not mere conclusory allegations." Tuchman

v.

DSC Commc 'ns Corp., 14

F.3d 1061, 1067 (5th Cir. 1994). In deciding a motion to dismiss, courts "must consider" the
complaint, as well as other sources such as documents incorporated into the complaint by
reference and matters of which a court may take judicial notice. Tellabs, Inc.

v.

Makor Issues &

Rights, Ltd., 551 U.S. 308, 322 (2007).

I.

Application
Sutherland argues Defendants' two counterclaims are untimely and should be dismissed

for failure to state a claim under Rule

1

2(b)(6).

As an initial matter, the Court notes the

counterclaims are timely as the scheduling order permitted amendments to pleadings as of right

through January 31, 2018. See Order of Nov. 15, 2017 [#22] at 2. The Court addresses the
remaining arguments by counterclaim below.
A. Fraudulent inducement

Sutherland contends Defendants' fraudulent inducement claim fails to meet the Rule 9(b)
heightened pleading standard.

See Mot. Dismiss [#30] at 5-7.

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According to Sutherland,

Defendants do not allege when, where, and how the alleged fraudulent statements were made,
fail to explain how the statements are false, fail to allege any scienter, and also fail to allege harm

caused by the statements. Id. Additionally, Sutherland avers the terms of the MSA preclude any
reliance on statements or representations not recited in the parties' agreements. Id. at 7-9.

Defendants counter that they have presented a plausible claim for fraudulent inducement
supported by sufficient facts to meet the requirements of Rule 9(b).

Resp. [#31] at 3-4.

Defendants also argue the terms of the MSA cannot insulate Sutherland from a fraudulent

inducement claim. Id. at 4-6.
A party claiming fraudulent inducement under Texas

law2

must demonstrate (1) a

material representation, (2) that was false, (3) that was either known to be false when made or
was asserted without knowledge of the truth, (4) that was intended to be acted upon, (5) was

relied upon, and (6) that caused injury. Dunbar Med. Sys. Inc.
453 (5th Cir. 2000).

v.

Gammex Inc., 216 F.3d 441,

A fraudulent inducement claim is subject to the heightened pleading

standard set forth in Rule 9(b), requiring the party pleading fraud to specify the statements
contended to be fraudulent, identify the speaker, state when and where the statements were
made, and explain why the statements were fraudulent. Hoffman

v.

L &

MArts, 838 F.3d 568,

576 (5th Cir. 2016); Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 339 (5th Cir. 2008).

Defendants' fraudulent inducement claim is premised on representations Sutherland
employee, John Kennedy, made to Olivedale's founder on the same day the MSA was signed.
See Am. Answer [#28] at 5-6.

More specifically, Defendants assert Sutherland fraudulently

induced them into signing the MSA when Kennedy represented Sutherland "was primarily an
2

Although the MSA is governed by New York law, the parties agree Texas law should apply to the two
tort counterclaims. The Court agrees. See Thompson & Wallace of Memphis, Inc. v. Falconwood Corp., 100 F.3d
429, 433 (5th Cir. 1996) (finding tort causes of action to be separate from the agreement and its enforcement, and
thus not governed by the choice-of-law provision within the contract).

engineering and technology firm that also performed consulting work," and Sutherland "would

provide Olivedale with a team of qualified software engineers, managers, physicians, and others
to build out Olivedale's platform and help the company reach its goals." Id.; see also Resp.
[#31] at3.

Defendants' allegations do not support a plausible claim for fraudulent inducement. To
start, Defendants do not explain how the above statements were false or fraudulent. Defendants

also fail to explain why or how Kennedy's representations were material, and offer no support

for the allegation Kennedy knew these statements were false at the relevant time.

Also,

Kennedy's alleged promise to provide qualified personnel is a promise of future performance for
which Defendants fail to allege was made without any intention of performing. See Formosa

Plastics Corp. USA

v.

Presidio Engineers & Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998)

("A promise of future performance constitutes an actionable misrepresentation if the promise

was made with no intention of performing at the time it was made.").

For these reasons, Sutherland is entitled to dismissal of Defendants' fraudulent
inducement counterclaim under Rule 1 2(b)(6), and the Court need not address the remaining

challenges to this claim.
B. Negligent hiring, training, supervision, and retention

Sutherland argues dismissal of Defendants' negligence counterclaim is appropriate

because Sutherland did not owe Defendants any duty before the MSA was signed and any duties
arising under the MSA are purely contractual. See Mot. Dismiss [#3 0] at 9-11. Additionally,

Sutherland advances the economic loss rule bars this claim. Id. at 11-12.

Defendants contend Sutherland owed a duty to the general public to ascertain the
qualifications and competence of Sutherland employee,

John

Kennedy.

Resp. [#3 1] at 7.

Defendants also assert Sutherland owed separate legal duties to train, supervise, and retain

Kennedy as a reasonably prudent employer would. Id. at 7-8. Finally, Defendants argue the
economic loss rule does not apply in this case because Sutherland breached a duty imposed by
law independent of the duties in the MSA. Id. at 8-10.
Texas imposes a general duty on employers to adequately hire, train, supervise, and retain
employees. See Houser v. Smith, 968 S.W.2d 542, 544 (Tex.
v.

App.Austin 1998, no pet.); Clark

PFPP Ltd. P'ship, 455 S.W.3d 283, 287 (Tex. App.Dallas 2015, no pet.). An employer

may be liable for negligently performing these responsibilities. Id. To bring a negligence claim

under this theory, a plaintiff must show: (1) an employee of the defendant committed an
actionable tort against the plaintiff, (2) the plaintiff suffered damages as a result of the

employee's foreseeable misconduct, (3) the employer was negligent in hiring, training,
supervising, or retaining the employee, and (4) the employee's misconduct would not have

occurred but for the employer's negligence. See Eure

v.

Sage Corp., 61 F. Supp. 3d 651, 667

(W.D. Tex. 2014).

While Texas law imposes a general duty on employer Sutherland, Defendants fail to

present a plausible claim for negligence arising under this duty. First, there is no plausible

allegation Kennedy committed an independent actionable tort against Defendants.3 See Nadeau
v.

Echostar, EP-12-CV-433-KC, 2013 WL 1715429, at *4 (W.D. Tex. Apr. 19, 2013)

(dismissing negligent supervision claim for failure to identify an independent, actionable tort by
employee); See Brown

v.

Swett & Crawford of Tex., Inc., 178 S.W.3d 373, 384

(Tex.App.

Houston [1st Dist.] 2005, no pet.) ("To prevail on a claim for negligent hiring or supervision, the

plaintiff is required to establish not only that the employer was negligent in hiring or supervising

Defendants may assert Kennedy committed an actionable tort in his alleged fraudulent statements, but as
explained in the section above, Defendants have not presented a plausible claim of fraud.

the employee, but also that the employee committed an actionable tort against the plaintiff.").
Second, Defendants do not allege damages from Kennedy's foreseeable misconduct but only

damages from Sutherland's actions.

See Am. Answer [#28] at 6 (alleging damages from

"Sutherland's numerous breaches"). Third, Defendants fail to allege or explain how Kennedy's
misconduct would not have occurred but for Sutherland's negligence. Put simply, Defendants
have failed to carry their burden on this counterclaim.

Even if Defendants presented a colorable claim of negligence, the claim would be barred
by the economic loss.

The only damages asserted in this case relate performance (or lack

thereof) under the terms of the MSA. In Texas, the "economic loss rule generally precludes

recovery in tort for economic losses resulting from a party's failure to perform under a contract

when the harm consists only of the economic loss of a contractual expectancy."
Custom Homes, Inc.

v.

Chapman

Dallas Plumbing Co., 445 S.W.3d 716, 718 (Tex. 2014). Defendants

correctly note that Texas recognizes an exception to the economic loss rule when a tortfeasor
breaches a duty independent of a contractual duty. See Resp. [#31] at 8-9.

However, this

exception also requires "the harm suffered is not merely the economic loss of a contractual
benefit."

Chapman, 445 S.W.3d at 718.

Such is not the case here, and thus the asserted

negligence claim is barred by the economic loss rule.
In the alternative, Defendants request leave to amend their pleadings to allege additional
facts to support their counterclaims. See Resp. [#31] at 4, 9-10. This request for leave is denied.

Defendants waited seven months to file counterclaims on the last day permitted by the Court's

Defendants suggest legal duty is the only relevant inquiry for application of the economic loss rule and
the scope of harm or loss is irrelevant. See Resp. [#311 at 9 (citing Sharyland Water Supply Corp. v. City of Alton,
354 S.W.3d 407, 417 (Tex. 2011)). The Court disagrees. The cited case is limited to claims for fraudulent
inducement, not tort claims in general. See Sharyland, 354 S.W.3d at 417 ("We later declined to extend DeL anney
to a fraudulent inducement claim, even when the claimant suffered only economic losses to the subject of a
contract.").

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scheduling order.

Despite ample time for discovery, Defendants have not identified facts to

support a plausible claim for fraudulent inducement or negligence. The parties' dispute sounds

in contract, not torts.

Conclusion
Because Defendants have failed to plead plausible counterclaims, Sutherland is entitled to
dismissal of Defendants' counterclaims under Rule 12.

Accordingly,
IT IS ORDERED that Plaintiffs Sutherland Global Services, Inc. and Sutherland

Healthcare Solutions, Inc. Motion to Dismiss Defendants' Counterclaims [#301 is

GRANTED; and
IT IS FINALLY ORDERED that Defendants' counterclaims are DISMISSED

WITH PREJUDICE.
SIGNED this the

9

day of March 2018.

SAM'T STATES DISTRICT JUDGE
SENIOR UNITED

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