Opinion
Case Number: 04-60861-CIV-MARTINEZ-KLEIN.
March 4, 2005
THIS CAUSE came before the Court upon Plaintiff Merrill Lynch Business Financial Services, Inc.'s ("Merrill Lynch") Motions to Strike Request for Jury Trial (D.E. No. 10) and to Dismiss Counts, I, II, III, and IV of Counterclaim (D.E. No. 19) filed on August 9, 2004, and September 21, 2004, respectively; Defendants Performance Machine Systems U.S.A., Inc. ("Performance Machine") and Carolyn Stash's ("Stash") Consolidated Memorandum of Law in Opposition to Plaintiff's Motion to Strike Request for Jury Trial and Motion to Dismiss Counterclaims (D.E. No. 22) filed on October 4, 2004; Merrill Lynch's Reply thereto (D.E. No. 27) filed on November 11, 2004; and Merrill Lynch's Notices of Filings (D.E. No. 37, 39, 40) filed on February 16, 2005. The Court also has before it Merrill Lynch's Motion to Strike or for More Definite Statement with Respect to Specific Affirmative Defenses (D.E. No. 24-1, 24-2) filed on November 10, 2004; Defendants' Memorandum in Opposition thereto (D.E. No. 29) filed on November 24, 2004; and Merrill Lynch's Reply thereto (D.E. No. 32) filed on December 9, 2004; as well as Merrill Lynch's Motion to Strike Declaration of Carolyn Stash (D.E. No. 26) filed on November 10, 2004; Defendants' Memorandum in Opposition thereto (D.E. No. 28) filed on November 24, 2004; and Merrill Lynch's Reply and Amended Reply thereto (D.E. No. 30, 31), both of which were filed on December 9, 2004.
Judge Martinez referred these matters to the undersigned on January 12, 2005. (D.E. No. 33.)
After considering the motions and responses, reviewing the file, and being otherwise advised, the Court recommends that Merrill Lynch's Motion to Dismiss Counts, I, II, III, and IV be GRANTED without prejudice and with leave to amend. The Court DEFERS ruling on Merrill Lynch's Motions to Strike Request for Jury Trial and to Strike Declaration of Carolyn Stash until after an evidentiary hearing is held on the issue of whether Defendants knowingly, voluntarily, and intelligently waived their right to a jury trial. Finally, the Court GRANTS Merrill Lynch's Motion to Strike or for More Definite Statement with Respect to Specific Affirmative Defenses.
FACTUAL AND PROCEDURAL BACKGROUND
This action involves a commercial line of credit extended by Merrill Lynch to Performance Machine, a business that imports and sells metal-cutting machinery. The loan transaction was guaranteed by Stash, Performance Machine's president, and memorialized in several loan and guaranty documents dated June 2001 and December 2002 which are attached to the complaint filed in this case. See Complaint ("Compl."), Ex. A (WCMA Loan and Security Agreement), Ex. B (Unconditional Guaranty), Ex. E. (WCMA Reducing Revolver-Loan and Security Agreement), and Ex. G (Unconditional Guaranty) (collectively referred to herein as the "Loan Agreement").
In general, under the terms of the Loan Agreement, Merrill Lynch agreed to loan money to Performance Machines "in such amounts" as Performance Machine "may from time to time request" in accordance with the terms of the Agreement, up to an amount not to exceed the maximum line of credit. Id., Ex. A at 3, ¶ 2.2(b). Notwithstanding the foregoing, Merrill Lynch "shall not be obligated to make any Loan, and may without notice refuse to honor any such request" by Performance Machine, if at the time the request was received "an event shall have occurred and be continuing which shall have caused any of the General Funding Conditions to not then be met or satisfied to the reasonable satisfaction of' Merrill Lynch. Id., ¶ 2.2(c). The Loan Agreement defined "General Funding Conditions" to mean each of several conditions, including that "no Default shall have occurred and be continuing." Id. at 1, ¶ 1.1.(j). "Events of Defaults" were defined as the occurrence of any of several delineated events, including Performance Machine's or Stash's failure to perform any covenant in the Loan Agreement and where such default continued unremedied for ten business days after written notice thereof. Id. at 7, ¶ 3.5(c). The Loan Agreement included several covenants, including the requirement that Performance Machine maintain a contractually-defined "fixed charge coverage ratio" and maintain in excess of a contractually-defined "minimum tangible net worth;" and that Stash maintain a contractually-defined amount of liquid assets.Id. at 6, ¶¶ 3.3.(j), (h), and (i), respectively.
On October 7, 2003, Merrill Lynch notified Performance and Stash (collectively referred to herein as "Defendants") in writing that the three covenants cited above had been violated; demanded written evidence within two weeks demonstrating that the covenants were satisfied; and advised that the failure to comply with the demands would constitute Events of Default and would result in termination of the line of credit. Id., Ex. L. Subsequently, on January 26, 2004, Merrill Lynch sent Defendants a written Notice of Default and Demand for Payment, advising that "an Event of Default has occurred and is continuing" under the Loan Agreement. Id. Merrill Lynch further advised that the line of credit had been terminated and all amounts owed under the Loan Agreement were due immediately. Id.
Merrill Lynch thereafter filed a four-count complaint against Defendants alleging default pursuant to the terms of the Loan Agreement and seeking damages against both Defendants under the Agreement, replevin of the collateral, and receivership with respect to the collateral. Defendants answered and filed a counterclaim, asserting that Merrill Lynch had terminated the line of credit without any justification, resulting in financial damages as well as damage to Performance Machine's business reputation. The counterclaim contains four counts: breach of contract (Count I); tortious interference with business relationships (Count II); violation of the Florida Deceptive and Unfair Trade Practices Act ("FDUTPA") (Count III); and violation of the implied covenant of good faith and fair dealing (Count IV). The counterclaim also contained a demand for a jury trial.See Defendants' Answer and Counterclaims ("Countercl.") at 11.
This action is now before the Court on four motions filed by Merrill Lynch: motions to strike Defendants' demand for a jury trial and to strike Stash's declaration which was submitted in support of the jury demand; a motion to dismiss Defendants' counterclaim pursuant to Federal Rule of Civil Procedure 12(b)(6); and a motion to strike six of Defendants' affirmative defenses or require that they be pled more specifically.
DISCUSSION
I. Motions to Strike Defendants' Demand for Jury Trial and to Strike Stash's Declaration
Merrill Lynch moves to strike Defendants' demand for a jury trial which was included in Defendants' answer. Merrill Lynch argues that the loan and guaranty documents at issue in this case were executed by Defendants and contain explicit jury waiver provisions which are enforceable, and, therefore, Defendants are not entitled to a jury trial. Merrill Lynch also moves to strike the declaration filed by Stash in opposition to the motion to strike the jury demand. In her declaration, Stash states she was "not aware" the documents she signed contained jury waiver provisions and asserts that Defendants did not "knowingly, voluntarily, or intelligently waive [their] right to a trial by jury in this matter." See Declaration of Carolyn Stash, appended to Defendants' Consolidated Memorandum in Opposition to Plaintiff's Motion to Strike Request for Jury Trial and Motion to Dismiss Counterclaims ("Opp'n"). If the motions to strike are not granted, Merrill Lynch alternatively asks that an evidentiary hearing be conducted on the issue of whether Defendants knowingly, voluntarily, and intelligently waived their right to a jury trial. See e.g., Allyn v. Western United Life Assurance Co., 347 F.Supp.2d 1246, 1251 (M.D. Fla. 2004) (right to jury trial may be waived by contract, but waiver must have been made knowingly, voluntarily, and intelligently). Because a factual record regarding this issue must be developed through discovery and an evidentiary hearing, the Court DEFERS ruling on these two motions. An evidentiary hearing will be scheduled by separate Order. II. Motion to Dismiss Legal Standard
Merrill Lynch moves to dismiss all four counts of the counterclaim. A motion to dismiss will be granted where it is "clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." Hishon v. King Spalding, 467 U.S. 69, 73 (1984). For purposes of a motion to dismiss, the complaint must be construed in the light most favorable to the plaintiff, and all facts alleged therein are accepted as true. Id. It is well-established that a complaint should not be dismissed for failure to state a claim "unless it appears beyond doubt that the Plaintiff can prove no set of facts" entitling him to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). Ordinarily, when considering a motion to dismiss under Rule 12(b)(6), a court examines only the allegations of the complaint. 5B Wright Miller, Federal Practice and Procedure § 1357 at 375-76 (3d ed. 2004). However, documents attached to the complaint may be considered under Rule 12(b)(6) without converting the motion to one for summary judgment. Shibata v. Lim, 133 F.Supp.2d 1311, 1315 (M.D. Fla. 2000).
Analysis
Initially, the Court notes that the counterclaim is drafted improperly. First, Counts II, III, and IV improperly incorporate prior counts. Count I consists of paragraphs 9 through 12, and expressly restates and incorporates all of the allegations in paragraphs 1 through 8 of the counterclaim (the factual allegations). Count II consists of paragraphs 13 through 16, and expressly restates and incorporates all of the allegations in paragraphs 1 through 12 (thereby incorporating Count I); Count III consists of paragraphs 17 through 20, and expressly restates and incorporates all of the allegations in paragraphs 1 through 16 of the counterclaim (thereby incorporating Counts I and II); and Count IV consists of paragraphs 21 through 24, and expressly restates and incorporates all of the allegations in paragraphs 1 through 20 of the counterclaim (thereby incorporating Counts I, II, and III). In addition, Defendants improperly incorporated all of the allegations of the complaint which they admitted and all of their averments from their Answer into each of the four counts of the counterclaim. It is impossible for Merrill Lynch to plead responsively to this hodge-podge of allegations. This incorporation method of pleading is clearly improper. See e.g., Whitney Info. Network, Inc. v. Gagnon, No. 2:03-CV-677, 2005 WL 91258 (M.D. Fla. Jan. 14, 2005) (counterclaim that incorporated all allegations of each count in every successive count, as well as all paragraphs in the answer and affirmative defenses, was subject to dismissal as "shotgun" pleading);Dubray v. Rosebud Hous. Auth., 565 F.Supp. 462, 465 (D.S.D. 1983) (confusion created where plaintiff indiscriminately restated and realleged the preceding paragraphs of the complaint at the beginning of each count although the allegations were not applicable to the particular count); Kutner v. Kalish, 173 So.2d 763, 765 (Fla. 3d DCA 1965) (by incorporating counts I and II into count III, plaintiffs so confused the issues as to render the count virtually impossible to defend against). The counterclaim thus not only presents a formidable task for Merrill Lynch to plead to, but also makes it impossible for the Count to sort out the various claims made by Defendants.
Based on this clear infirmity in pleading, the Court recommends that all four counts be dismissed without prejudice and with leave to amend. Alternatively, the Court also recommends dismissal of all four counts without prejudice with leave to amend based on the grounds set forth below.
1. Breach of Contract (Count I)
Defendants allege in Count I of their counterclaim that Performance Machine and Merrill Lynch entered into a loan agreement whereby Performance Machine had access to a line of credit which it used to operate its business; that Merrill Lynch breached the loan agreement by terminating Performance Machine's line of credit when no event of default had occurred; and that Performance Machine suffered damages as a result of the breach.See Countercl., ¶¶ 10-12. In order for a breach of contract claim to survive a Rule 12(b)(6) motion, a plaintiff in a diversity case must plead the elements of breach of contract as established by the applicable state's laws. The Essex Real Estate Group, Ltd. v. River Works, L.L.C., No. 01-C-5285, 2002 WL 1822913, *2 (N.D. Ill. Aug. 7, 2002); Hodges v. Buzzeo, 193 F.Supp.2d 1279, 1282-83 (M.D. Fla. 2002). In the instant case, Illinois law governs.
A federal court exercising diversity jurisdiction must apply the choice-of-law rules of the forum state to determine the substantive law to be applied in the case. American Family Life Assur. Co. v. U.S. Fire Co., 885 F.2d 826, 830 (11th Cir. 1989) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., Inc., 61 S.Ct. 1020, 1021-22 (1941)). Florida's choice-of-law rules provide that a court should respect a choice-of-law provision within a contract, unless the chosen law contravenes Florida public policy. Fla. Evergreen Foliage v. E.I. Du Pont De Nemours Co., 135 F.Supp.2d 1271, 1277 (S.D. Fla. 2001). Here, the Loan Agreement specifies that it shall be governed by the laws of the State of Illinois. See Compl., Ex. A at 10, ¶ 7(i); Ex. B at 2; Ex. E at 11, ¶ 4.7(i); Ex. G at 2. Merrill Lynch cites Illinois law with respect to the elements necessary to state a claim for breach of contract, see Merrill Lynch's Motion to Dismiss ("Mot. Dism.") at 6, and Defendants do not suggest otherwise. Accordingly, the Court will apply Illinois law when analyzing the breach of contract claim.
To state a claim for breach of contract under Illinois law, a plaintiff must allege that 1) a contract existed; 2) the plaintiff sufficiently performed its contractual obligations; 3) the defendant breached its contractual obligations; and 4) the plaintiff suffered damages as a result of the defendant's breach.Essex, 2002 WL 1822913, *2 (citing McClellan v. Banc Midwest, McLean County, N.A., 517 N.E.2d 762, 764 (Ill.App.Ct. 1987)).
Merrill Lynch asserts that Defendants failed to plead the second element of breach of contract as they did not allege they performed their obligations under the Loan Agreement. This omission, Merrill Lynch argues, requires dismissal of this claim. Defendants, on the other hand, contend their allegations that Merrill Lunch breached the Loan Agreement by terminating the line of credit "when no event of default had occurred" "make it clear" that Performance Machine was not in default and, consequently, was performing under the Loan Agreement when termination occurred. See Opp'n at 8.
The Court concludes that Defendants have failed to adequately plead a claim for breach of contract under Rule 8(a). The statement that "no event of default had occurred" does not necessarily mean that Defendants "sufficiently performed [all their] contractual obligations" under the Loan Agreement during the relevant time period, as required by Illinois law. A counterclaim must stand on its own, without regard to the original complaint, and Defendants' reference to Merrill Lynch's complaint allegations does not supplant Defendants' obligation to plead their own counterclaim sufficiently. The counterclaim must be pleaded as fully and distinctly and with the same substantial requisites as an original cause of action. See generally 6 Wright Miller, Federal Practice and Procedure § 1407 (2d ed. 1990). In the absence of a specific allegation that Defendants met their contractual obligations, the Court recommends GRANTING the motion to dismiss Count I without prejudice and with leave to amend.
Merrill Lynch also seeks dismissal of Count I on the ground that it had no legal obligation to advance on the line of credit if Defendants failed to satisfy the "general funding obligations" contained in the loan documents. Merrill Lynch cites Midlantic Nat'l Bank v. Commonwealth Gen., Ltd., 386 So.2d 31, 33 (Fla. 4th DCA 1980), for the proposition that a line of credit does not impart upon a lender the legal responsibility to loan up to the limit of the line. Midatlantic is factually distinguishable from the instant case. In Midlantic, there was no written agreement regarding the terms of the line of credit, while in the instant case the Loan Agreement set forth conditions Defendants were required to satisfy and circumstances that could trigger default, notice, and termination of the line of credit. Also,Midlantic involved an appeal from a final judgment, and the court there cited specific information the bank had and which was proved in the case regarding Kaplan's future ability to satisfy his debts (i.e., a bankruptcy). By contrast, the instant case is before this Court on a motion to dismiss, and the facts surrounding Merrill Lynch's termination of the line of credit have yet to be determined. It would be inappropriate to decide at this juncture whether Defendants satisfied the relevant terms of the Loan Agreement or whether Merrill Lynch without legal justification terminated the line of credit. All the Court may do at this early stage in the case is examine the sufficiency of Defendants' allegations.
2. Tortious Interference with Business Relationships (Count II)
Defendants allege in Count II that Merrill Lynch knowingly and unjustly interfered with Performance Machine's business relationship with AWEA and with Performance Machine's business relationships "with dealers nationwide," resulting in a substantial financial loss to Performance Machine; and that Merrill Lynch's actions were willful and taken for the purpose of forcing Stash to give Merrill Lynch a mortgage on her personal residence. See Countercl., ¶¶ 14-16. Regarding Performance Machine's business relationships with AWEA and other dealers, Defendants allege that Performance Machine held the exclusive rights to distribute AWEA metal-cutting machines in the United States and that Performance Machine "developed, cultivated, and trained dealers throughout the United States [and] establish[ed] a network of dealers who marketed and sold AWEA metal-cutting machines to clients nationwide." Id., ¶ 2. Defendants further allege that Merrill Lynch knew of these relationships, and understood that Performance Machine's business operations depended on its access to a line of credit. Id., ¶¶ 3, 5. Defendants also allege that termination of the line of credit resulted in Performance Machine's inability to complete the sales of at least two AWEA machines and forced the company to sell another AWEA machine in its inventory at a significant discount.Id., ¶ 7.
To state a claim for tortious interference with a business relationship, a party must allege 1) the existence of a business relationship that affords the plaintiff existing or prospective legal rights; 2) the defendant's knowledge of the business relationship; 3) the defendant's intentional and unjustified interference with the relationship; and 4) damage to the plaintiff. Int'l Sales Serv., Inc. v. Austral Insulated Prods., Inc., 262 F.3d 1152, 1154 (11th Cir. 2001). Merrill Lynch first argues that dismissal is appropriate because Defendants failed to plead facts showing that Merrill Lynch intentionally and unjustifiedly interfered with Defendants' business relationship. Citing Austral, which referred to a prior Eleventh Circuit decision wherein it held that tortious interference requires "a relationship with a particular party, and not just a relationship with the general business community,"id. at 1156, Merrill Lynch contends that Defendants' allegations of interference with "unidentified `dealers'" are insufficient to support an action for tortious interference.See Mot. Dism. at 8.
The Loan Agreement provides that it shall be governed in all respects by Illinois law, but it does not refer to related tort claims or to any and all disputes arising out of the relationship of the parties. Green Leaf Nursery v. E.I. DuPont De Nemours Co., 341 F.3d 1292, 1300 (11th Cir. 2003); see also Rayle Tech, Inc. v. DEKALB Swine Breeders, Inc., 133 F.3d 1405, 1409-10 (11th Cir. 1998) (explaining that a provision stating that a contract was "governed by" Illinois law did not incorporate Illinois tort law); Burger King Corp. v. Austin, 805 F.Supp. 1007, 1012 (S.D. Fla. 1992) (tort claims "are not ordinarily controlled by a contractual choice of law provision. . . . Rather, they are decided according to the law of the forum state."). Merrill Lynch cites to Florida law for the elements of tortious interference with business relationship, and Defendants do not appear to dispute that Florida rather than Illinois law applies here. Accordingly, for purposes of this discussion, the Court will apply Florida law to the tort claim.
The Court disagrees. Defendants have gone beyond merely alleging business relationships with the "general business community" or "the public at large." Compare Nautica Int'l, Inc. v. Intermarine USA, L.P., 5 F.Supp.2d 1333, 1344-45 (S.D. Fla. 1998) (plain reading of plaintiff's allegation that "foreign governments intended to purchase from [plaintiff] based on the design developed during [a specified project], and that such sales were contingent on [the government] awarding the Production contract to [defendant]," revealed that the tortious interference claim was not predicated upon relationships with the community at large); Ins. Field Servs., Inc. v. White White Inspection Audit Serv., Inc., 384 So.2d 303, 306 (Fla. 5th DCA 1980) (plaintiff, who had regularly been performing underwriting inspections, premium audits, and loss control work for sixteen insurance company clients, had a business relationship with these companies even though plaintiff and his clients did not have written agreements); with Ferguson Transp., Inc. v. N. American Van Lines, Inc., 687 So.2d 821, 822 (Fla. 1996) (Florida Supreme Court approved the intermediate court's ruling that a Florida moving and storage company's contract to be the exclusive agent in Broward County for an interstate carrier of household goods established a relationship with "the public at large," not with an identifiable person, which was insufficient to support a claim for tortious interference with business relationship); Ethan Allen, Inc. v. Georgetown Manor, Inc., 647 So.2d 812, 815 (Fla. 1994) (holding that furniture company's relationship with its 89,000 past customers was not one upon which a tortious interference claim could be based because the company's hope that some of its past customers would continue to buy furniture from it was mere "speculation"). Here, Defendants have specifically asserted a business relationship with AWEA by virtue of holding the exclusive rights to distribute that company's metal-cutting machines in this country, and they also have alleged they have a network of dealers through whom they market and sell the AWEA machines. That is sufficient at this stage in the case.
Merrill Lynch also moves for dismissal on the ground that Defendants failed to allege any direct interference by Merrill Lynch in their business relationships. The Court agrees that this is a valid basis for dismissal. An essential element of tortious interference with a business relationship is that the interference be both direct and intentional. See Hager v. Venice Hosp., Inc., 944 F.Supp 1530, 1535 (M.D. Fla. 1996) (citing Lawler v. Eugene Wuesthoff Mem'l Hosp., 497 So.2d 1261 (Fla. 5th DCA 1986)); McCurdy v. J.C. Collis, 508 So.2d 380, 383 (Fla. 1st DCA 1987) (also citing Lawler); Rosa v. Fla. Coast Bank, 484 So.2d 57, 58 (Fla. 4th DCA 1986). In Ethyl Corp. v. Balter, 386 So.2d 1220, 1223 (Fla. 3d DCA 1980), the court held that proof of direct interference in a business relationship was "indispensable to the existence of an actionable wrong." In this case, while Defendants alleged that Merrill Lynch "knowingly and unjustly interfered" with their business relationships, they did not assert that Merrill Lynch directly interfered with their relationships with AWEA and the dealers. At most, the facts as alleged by Defendants suggest that Merrill Lynch's actions in terminating the line of credit indirectly affected Defendants' relationship with AWEA and the dealers. As the Ethyl court explained, a cause of action for interference which is only negligently or consequentially effected does not exist. Id. at 1224. See also Lawler, 497 So.2d at 1263 (where the alleged interference with the doctor/patient and doctor/doctor relationships was clearly only an indirect consequence of the termination of the doctor's staff privileges, intentional interference claim properly dismissed). Defendants must allege (and ultimately prove) that Merrill Lynch's act of termination had more than just the consequence that it resulted in an interference with Defendants' relationship with AWEA and the dealers; they must allege (and prove) that Merrill Lynchdirectly interfered with Defendants' relationship with AWEA and the dealers. They have failed to so allege. Accordingly, the Court recommends the claim for tortious interference with business relationships be GRANTED without prejudice and with leave to amend.
The Court is declining to rule at this time on an important issue raised by Merrill Lynch: whether the economic loss rule bars Defendants' claim for tortious interference with business relationship. See Merrill Lynch's Reply ("Reply") at 7. The economic loss rule generally prohibits tort actions to recover solely economic damages for those in contractual privity. See Indem. Insur. Co. of N. America v. American Aviation, Inc., No. SC03-1601, 2004 WL 2973861, *3-*4 (Fla. Dec. 23, 2004) (reviewing the circumstances under which the economic loss rule applies; noting that one of the few exceptions to the economic loss rule involves torts committed independently of the contract breach);see also HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 685 So.2d 1238, 1239 (Fla. 1996) (economic loss rule does not eliminate "causes of action based upon torts independent of the contractual breach even though there exists a breach of contract action."); Eclipse Med., Inc. v. American Hydro-Surgical Instruments, Inc., 262 F.Supp.2d 1334, 1356-57 (S.D. Fla. 1999) (suppliers' failure to honor an alleged contractual provision to supply plaintiffs with products cannot be said to be an interference with any opportunity the distributors may have had to resell the same products; the alleged interference had nothing to do with conduct toward third parties, rather, its focus was on the parties' contractual relationship and thus the economic loss rule barred claim); Excess Risk Underwriters, Inc. v. Lafayette Life Ins. Co., 208 F.Supp.2d 1310, 1315-20 (S.D. Fla. 2002) (discussing Florida's economic loss rule, and holding that claim for tortious interference with contractual business relationship was barred by that rule because allegations were identical to allegations that constituted breach of contract claim).
It appears very likely that this rule operates to bar Defendants' tortious interference claim. However, Merrill Lynch raised the argument for the first time in its reply brief. Defendants did not seek leave to file a sur-reply addressing this new argument, nor did they move to strike it from Merrill Lynch's reply, and thus the issue has not been fully briefed. Since Defendants, in any event, will have to replead (given this Court's other recommendations herein), the Court declines to consider this issue at the present time. If Defendants replead and again assert a claim for tortious interference, Merrill Lynch is free to again raise the economic loss rule by way of a motion to dismiss, which will catalyze a full briefing on this important issue.
One issue the parties should address is whether Florida or Illinois law applies to this tort claim. Both states adhere to the economic loss doctrine, but the exceptions to the doctrine are different. See Ivanhoe Fin., Inc. v. Highland Banc Corp., No. 03-C-7336, 2004 WL 546934, * 2-*3 (N.D. Ill. Feb. 26, 2004). The forum state's choice-of-law rules determine the applicable law governing Defendants' tort claims. See Green Leaf, 341 F.3d at 1301. In Florida, the "most significant relationship" test is used to determine which state's law applies to tort claims. Id. The parties have not briefed this point, and the Court is unable to determine on this record which state has the most significant relationship to the parties. This Court preliminarily applied Florida law based upon Merrill Lynch's uncontested assertion of its applicability on this point. If, however, Defendants wish to take a different position after any amended pleading is filed by them, they should say so.
The economic loss rule does not preclude a claim under FDUTPA. Comptech Int'l, Inc. v. Milam Commerce Park, Ltd., 753 So.2d 1219, 1221-23 (Fla. 1999) (citing with approval district court decisions which hold that the economic loss rule cannot be used to eliminate a statutory cause of action, including, specifically, one brought pursuant to FDUTPA).
Defendants allege in Count III that Merrill Lynch unjustly terminated Performance Machines's line of credit when no default event had occurred; that Merrill Lynch did so for a deceptive and improper purpose, i.e., to force Stash to give Merrill Lynch a mortgage on her personal residence; and that Merrill Lynch's actions caused Performance Machine to lose business and constituted unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in violation of FDUTPA.See Countercl., ¶¶ 18-20.
FDUTPA is a consumer protection law intended to "protect the consuming public and legitimate business enterprises from those who engage in unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce." Fla. Stat § 501.202(2). Individuals, businesses, and corporations who purchase goods or services are among the various entities defined as "consumers" under the statute. Shibata, 133 F.Supp.2d at 1317; N.G.L. Travel Assocs. v. Celebrity Cruises, Inc., 764 So.2d 672, 674 (Fla. 3d DCA 2000); Fla. Stat. § 501.203(7). "Trade or commerce" means "the advertising, soliciting, providing, offering, or distributing, whether by sale, rental, otherwise, of any good or service, or any property, whether tangible or intangible, or any other article, commodity, or thing of value, wherever situated." Fla. Stat. § 501.203(8). "Thing of value" includes but is not limited to any moneys, benefit, and interest. Fla. Stat. § 501.203(9).
To state a cause of action under FDUTPA, a consumer must allege sufficient facts to show he was actually aggrieved by an unfair or deceptive act committed by the seller in the course of trade or commerce. Tuckish v. Pompano Motor Co., 337 F.Supp.2d 1313, 1320 (S.D. Fla. 2004); In re Crown Auto Dealerships, Inc., 187 B.R. 1009, 1018 (M.D. Fla. 1995). FDUTPA applies to a private cause of action "arising from single unfair or deceptive acts in the conduct of any trade or commerce, even if it involves only a single party, a single transaction, or a single contract." PNR, Inc. v. Beacon Prop. Mgmt, Inc., 842 So.2d 773, 777 (Fla. 2003). An "unfair practice" is "one that `offends established public policy' and one that is `immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers.'" Id. (citation omitted). "Deception" occurs if there is a "representation, omission, or practice that is likely to mislead the consumer acting reasonably in the circumstances, to the consumer's detriment." Id. (citation omitted). See also Shibata, 133 F.Supp.2d at 1317 (noting that the term "unfair or deceptive acts" is not clearly defined); In re Crown, 187 B.R. at 1018 (same).
Merrill Lynch argues that Defendants failed to state a cause of action under FDUTPA, citing Black v. Dept. of Legal Affairs, 353 So.2d 655 (Fla. 2d DCA 1977), for the proposition that resolution of business disputes between parties involved in continuing business relationships does not fall within the ambit of FDUTPA. See Mot. Dism. at 11. Because Defendants had executed original and renewed loan documents more than once before Merrill Lynch terminated their line of credit, Merrill Lynch claims the parties had a "continuing commercial lending relationship" which was not protected under FDUTPA. Id. Merrill Lynch's reliance on Black is misplaced. The relevant discussion in that case turned on an interpretation of the term "consumer transaction" which was omitted from the statute in 1993 when FDUTPA underwent substantial revision. See e.g., Tampa Bay Storm, Inc. v. Arena Football League, Inc., No. 96-29-CIV-T-17C, 1998 WL 182418, *7 (M.D. Fla. Mar. 19, 1998) (discussing some of the differences in the pre- and post-1993 versions of FDUTPA). In any event, Black is distinguishable for another important reason: it involved an appeal from a final judgment after trial, while the instant matter is before the Court on a motion to dismiss with the full record yet to be developed.
Nonetheless, the Court concludes that dismissal of this count is appropriate. Of particular concern is Defendants' failure to allege that the lending relationship between Merrill Lynch and Performance Machine constituted "trade or commerce" or the "conduct of any trade or commerce" under Fla. Stat. § 501.203(8).See Shibata, 133 F.Supp.2d at 1320-21 (court noted that the "parties cite to no authority indicating that [F]DUTPA was intended to apply to loans," then dismissed FDUTPA claim on other grounds). Moreover, Defendants have not sufficiently pled that Merrill Lynch's actions constituted an "unfair or deceptive act." They allege in conclusory fashion that Merrill Lynch "wrongfully, unreasonably and unjustly" and for a "deceptive and improper purpose" terminated Performance Machine's line of credit, in order to force Stash to give a mortgage on her personal residence. See Countercl., ¶¶ 6, 18-19. This is insufficient. In accordance withPNR, Defendants must allege sufficient facts to suggest (though not conclusively show) that Merrill Lynch's actions "offended established public policy" and are "immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers" or involved a representation, omission, or practice that was likely to mislead Defendants who were acting reasonably in the circumstances, to their detriment. 842 So.2d at 777 n. 2 (not every breach of contract claim is also a FDUTPA claim; FDUTPA "only reaches conduct that is unfair or deceptive as judged by controlling case law"). They have not done so. To reiterate for emphasis, Defendants must do more than merely recite conclusory allegations; they must allege facts which properly raise recognizable FDUTPA claims. Because Defendants have failed to state a claim for a violation of FDUTPA, the Court recommends that Merrill Lynch's motion to dismiss Count III of the counterclaim be GRANTED without prejudice, and with leave to amend.
4. Implied Covenant of Good Faith and Fair Dealing (Count IV)
Defendants allege in Count IV that Merrill Lynch violated the implied covenant of good faith and fair dealing by improperly threatening to terminate, and then terminating, Performance Machine's line of credit, and by accelerating Performance Machine's loan obligation, in a manner that was arbitrary, capricious, and inconsistent with the reasonable expectations of the parties, and which resulted in damages to Performance Machine. See Countercl., ¶¶ 22-24.
Florida courts recognize that an implied covenant of good faith and fair dealing is a part of every contract. Burger King Corp. v. Weaver, 169 F.3d 1310, 1315 (11th Cir. 1999); Shibata, 133 F.Supp.2d at 1318. The covenant "ensures that neither party will do anything that will injure the right of the other party to receive the benefits of the contract." Shibata, 133 F.Supp.2d at 1318. The purpose of this rule is to protect the "reasonable or justifiable expectations of the contracting parties in light of their express agreement." Id. See also Ernie Haire Ford, Inc. v. Ford Motor Co., 260 F.3d 1285, 1291 (11th Cir. 2001) ("one party cannot capriciously exercise discretion accorded it under a contract so as to thwart the contracting parties' reasonable expectations."). However, the covenant of good faith and fair dealing does not serve as an independent term within a contract, but "attaches . . . to the performance of a specific contractual obligation." Ernie Haire Ford, 260 F.3d at 1291 (citation omitted). The covenant is limited in that it (a) cannot be maintained in the absence of a breach of an express contract provision, and (b) cannot be used to vary the terms of an express contract. Weaver, 169 F.2d at 1316 (citations to Florida appellate decisions omitted).
To the extent that Defendants' Count IV allegations can be parsed from all of the kitchen-sink incorporations of other pleadings, the count still fails to state a cause of action. As noted above, the duty of good faith cannot be used to vary the express terms of the contract and cannot be maintained in the absence of a breach of an express provision. Id. Defendants' allegations here run afoul of these legal requirements: the Loan Agreement which is incorporated by reference permits Merrill Lynch to exercise its discretion to discontinue funding if certain acts of default occur; the allegations of Count IV attempt to directly contradict the express terms of the contract by a general free-floating claim that Merrill Lynch's act of termination was done with an improper motive and in a manner that was arbitrary and capricious and inconsistent with the reasonable expectation of the parties.
To be sure, Defendants have incanted the conclusory platitudes of a purported breach of the implied covenant of good faith and fair dealing. However, they have failed to attach the claim to the performance of a specific contractual obligation. Ernie Haire Ford, 260 F.3d at 1291. Most likely, Defendants are contending that Merrill Lynch exercised its discretion arbitrarily and capriciously. This would be a cognizable claim if Defendants pled it in such a way as to show that Merrill Lynch's reasons for exercising that discretion were not founded on any factually agreed-to conditions contained in the Loan Agreement. In other words, if Merrill Lynch, instead of basing its decision on precise or particular factors enunciated in the bargained-for contract, decided rather to terminate based on whim, caprice, or some other arbitrary consideration, Defendants could claim that Merrill Lynch's act was a breach of the implied covenant of good faith and fair dealing. But if Merrill Lynch based its decision on express unmet requirements in the contract, Defendants would have no claim under this theory. To maintain a cause of action, Defendants must plead that Merrill Lynch's acts were the product of arbitrarily-exercised discretion, and not founded on the contractual prerequisites that would permit Merrill Lynch to properly exercise such discretion.
Ultimately, to maintain this cause of action, Defendants must show that no reasonable party would have made the same discretionary decision. Ernie Haire Ford, 260 F.3d at 1291.
However, instead of adverting to specific contractual provisions, Defendants merely pled generally that Merrill Lynch's threat and termination were accomplished with improper motive and were performed arbitrarily. This is plainly insufficient. Defendants must plead facts relating to a specific contract provision which has been breached, and that the covenant is not an askance attempt to vary the terms of an express contractual provision. Weaver, 169 F.3d at 1316, 1318.
In Shibata, supra, the court aptly noted at 1318:
The implied covenant is not a limitless duty or obligation. It is an interpreting gap-filling tool of contract law. . . . The covenant must relate to the performance of an express term of the contract, and it is not an abstract and independent term of a contract which may be asserted as a source of breach when all other terms have been performed pursuant to the contract requirements.
The inclusion of specific criteria as a prerequisite for triggering Merrill Lynch's discretion differentiates this case from Ernie Haire, in which no standards for the exercise of discretion are evident. Such a lack of parameters would thus precipitate the need for and application of the rule that such discretion not be exercised arbitrarily or capriciously. By contrast, the existence of such standards here thus provides a definable benchmark for testing such discretion; only if Merrill Lynch is accused of exercising its discretion arbitrarily and not based on its utilization of the contractual standards would a claim for breach of the implied covenant of good faith and fair dealing be sustainable.
One final caveat is in order. Even if Defendants properly plead this claim, the count ultimately may be dismissed as redundant if the conduct violating the implied covenant is duplicative of the breach of contract claim. See cases collected in Shibata, 133 F.Supp.2d at 1319. As the court in Shibata stated:
Thus, a party can maintain a claim for breach of the implied duty only if it is based on allegations different than those underlying the accompanying breach of contract claim. If the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated.Id. Whether Defendants can meet these requirements if they decide to replead this count will be determined based on the allegations made at that time. But for now, it is this Court's recommendation that Count IV be dismissed without prejudice, with leave to amend.
III. Motion to Strike Affirmative Defenses or for More Definite Statement
Merrill Lynch moves to strike the second, third, fourth, fifth, sixth, and seventh affirmative defenses Defendants asserted in response to Merrill Lynch's complaint. Rule 8(c) provides that each party must set forth affirmative defenses in a responsive pleading. A court may strike from any pleading any "insufficient defense or any immaterial, impertinent, or scandalous matter" on proper motion by a party. Fed.R.Civ.P. 12(f). Motions to strike generally are disfavored and "will usually be denied unless the allegations have no possible relation to the controversy and may cause prejudice to one of the parties." At the same time, affirmative defenses are subject to the general pleading requirements of Rule 8(a) ("short and plain statement") and will be stricken if they fail to recite more than bare-bones conclusory allegations. Microsoft Corp. v. Jesse's Computers Repair, Inc., 211 F.R.D. 681, 684 (M.D. Fla. 2002); Renalds v. S.R.G. Restaurant Group, 119 F.Supp2d 800, 802 (N.D. Ill. 2000); 5 Wright Miller, Federal Practice and Procedure § 1274 (3d ed. 2004).
Defendants' second affirmative defense states the complaint "fails in whole or in part to state a claim for relief upon which relief may be granted." See Defendants' Answer ("Answer") at 6. This defense is insufficient as it is no more than a recitation of the standard for dismissal under Rule 12(b)(6). It is a bare-bones conclusory allegation that fails to notify Merrill Lynch of the deficiencies in the complaint. See e.g., Renalds, 119 F.Supp.2d at 803-804 (simply reciting the standard for dismissal under Rule 12(b)(6) is an abdication of a party's responsibility for alleging the basic facts demonstrating an entitlement to relief). The Court grants Merrill Lynch's motion to strike the second affirmative defense, but grants leave to Defendants to replead with greater specificity.
Defendants' third, fourth, and fifth affirmative defenses are similarly deficient. These defenses state that Merrill Lynch "failed to use reasonable diligence to mitigate its damages, if any" (third); "is barred from relief by the doctrines of waiver and estoppel" (fourth); and "is barred from relief by the doctrine of unclean hands" (fifth). See Answer at 6. Each of these defenses contains a bare-bones conclusory allegation which simply names a legal theory but does not indicate how the theory is connected to the case at hand. See e.g., Ivanhoe Fin., Inc. v. Highland Banc Corp. No. 03-C-7336, 2004 WL 2091997, *3-*4 (N.D. Ill. Sept. 15, 2004) (striking defenses where defendants failed to state what measures plaintiff allegedly failed to take to mitigate damages and failed to allege all of the elements for laches and unclean hands); Fleet Bus. Credit Corp. v. Nat'l City Leasing Corp., 191 F.R.D. 568, 569-70 (N.D. Ill. 1999) (striking affirmative defenses which simply stated that plaintiff's claims were barred, in whole or part, "by the doctrine of laches" and "by the doctrines of waiver and estoppel"); Microsoft, 211 F.R.D. at 684 (striking defense of copyright misuse where defendant failed to set forth any facts whatsoever in support of that defense). Accordingly, the Court will grant the motion to strike the third, fourth, and fifth affirmative defenses, again with leave to replead in a manner that complies with Rule 8(a).
Defendants' sixth affirmative defense states that Merrill Lynch "is estopped from relying on the terms of the terms of the [Loan Agreement] or from seeking relief for any alleged event of default or breach of [the Loan Agreement] as a result of Merrill Lynch's own prior breach of [the Agreement]." See Answer at 6. Like the others, this defense is a conclusory statement and fails to specify how Merrill Lynch allegedly breached the Loan Agreement. The Court grants Merrill Lynch's motion to strike the sixth affirmative defense, with leave to replead.
Finally, the Court also will strike the seventh affirmative defense, through which Defendants attempt to reserve the right to assert additional defenses in the future. This statement is a nullity and surplusage as Defendants will still have to move for leave to amend to raise new defenses. Such a motion will be considered on its own merits, without regard to Defendants' reservation of rights. They get no added benefit or consideration by having reserved a right to amend at a later date. The statement has no efficacy, and thus the Court grants Merrill Lynch's motion to strike the seventh affirmative defense.
Merrill Lynch erroneously states it is entitled to reply to Defendants' answer. See Merrill Lynch's Motion to Strike or for More Definite Statement with Respect to Specific Affirmative Defenses ("Mot. Aff. Dfs.") at 4. A reply is permissible only if the Court orders it. See Rule 7(a). Otherwise, Rule 12(a)(2) authorizes Merrill Lynch to reply to a counterclaim filed in conjunction with an answer, not to the answer itself nor to the affirmative defenses raised therein.
CONCLUSION
Based upon a review of the record as a whole, the undersigned Magistrate Judge does hereby RECOMMEND that1) Plaintiff Merrill Lynch Business Financial Services, Inc.'s Motion to Dismiss Counts I, II, III, and IV of Counterclaim ( D.E. No. 19) be GRANTED without prejudice, and
2) Defendants be allowed to file an Amended Counterclaim within ten (10) days of the District Judge's Order Dismissing the Counterclaim.
Furthermore, the undersigned Magistrate Judge does hereby ORDER AND ADJUDGE that
3) Ruling on Plaintiff Merrill Lynch Business Financial Services, Inc.'s Motion to Strike Request for Jury Trial ( D.E. No. 10) is DEFERRED.
4) Ruling on Merrill Lynch's Motion to Strike Declaration of Carolyn Stash ( D.E. No. 26) is DEFERRED.
5) Merrill Lynch's Motion to Strike or for More Definite Statement with Respect to Specific Affirmative Defenses ( D.E. No. 24) is GRANTED.
6) Merrill Lynch's Motions for Extension of Time [ D.E. No. 30, 31] are GRANTED nunc pro tunc.