Opinion
11 Civ. 2939 (BSJ) (FM)
08-13-2012
THE NIELSEN COMPANY (US), LLC, Plaintiff and Counterclaim-Defendant, v. SUCCESS SYSTEMS, INC., Defendant and Counterclaim-Plaintiff, and SCOTT TARLOW and MINDY NOVICK, Defendants.
DECISION AND ORDER FRANK MAAS, United States Magistrate Judge.
Plaintiff Nielsen Company (US), LLC ("Nielsen") brings this action against Success Systems, Inc. ("Success") and two Success officers alleging breach of contract and fraudulent misrepresentation. (See ECF No. 53 ("Amended Complaint")). In its answer, Success has asserted several counterclaims against Nielsen. (ECF No. 58 at 1-20 ("Answer"); id. at 20-84 ("Counterclaims" or "Countercl.")). Success now has moved, pursuant to Rule 13(h) of the Federal Rules of Civil Procedure, to add two Nielsen managers, Chris LeClair ("LeClair") and Thad Taylor ("Taylor"), as defendants in its fraud counterclaim against Nielsen. (ECF No. 66 ("Success Mem."); see Countercl. ¶¶ 233-46). For the reasons set forth below, that motion is denied.
I. Factual Background
Except where otherwise indicated, the following facts, taken from Success's Answer and Counterclaims dated April 13, 2012, are assumed to be true.
Nielsen is a Delaware limited liability company and "the world's leading provider of marketing information, audience measurement, and business media products and services." (Countercl. ¶¶ 2, 8). Success is a small Connecticut corporation that supplies software and web-based applications to improve the business operations of retail stores. (Answer ¶ 10; Countercl. ¶¶ 1, 16). At all relevant times, LeClair was the Vice-President of Retail Measurement Services at Nielsen; Taylor was Nielsen's Senior Global Sourcing Manager. (Countercl. ¶¶ 3, 4).
On October 4, 2010, Nielsen and Success entered into a General Services Agreement with a Statement of Work (collectively referred to as the "GSA"), pursuant to which Success was to convert to automated scanning platforms 1,222 convenience stores that were manually reporting sales and inventory data to Nielsen. This work was to be accomplished by November 15, 2010. (See id. ¶¶ 14, 25, 27). Additionally, if existing Nielsen stores were unwilling to convert, Success was to sign up additional replacement stores through telemarketing. (Id. ¶¶ 16, 20-21). The GSA further provided that, if a "change in the scope of Services significantly increases or decreases the cost of or the time for performance, an equitable adjustment shall be made and the Agreement modified accordingly." (Id. ¶ 32) (emphasis omitted).
LeClair and Taylor were Success's primary contacts at Nielsen during the negotiation of the GSA. (Id. ¶ 52). Success indicated to Nielsen prior to executing the GSA that Success intended to target both existing and new stores simultaneously using an outsourced telemarketing call center. (See id. ¶¶ 20-21, 45-47, 52-53). Nielsen did not object to this approach, which later was referenced in the GSA. (Id. ¶ 20). The GSA thus did not require that Success focus exclusively on existing stores before moving on to others. (Id. ¶ 31).
Immediately after the GSA was executed, however, LeClair and Taylor made changes to the GSA that significantly increased the time and cost of Success's performance. (Id. ¶¶ 33-34). Specifically, when Success requested the names of additional stores for its call center to contact in October 2010, Nielsen refused to provide additional store names. (Id. ¶¶ 37-38). LeClair told Success that the parties needed to discuss the call center approach, expressing concern that Nielsen's stores were "going to be missed, skipped over, not given full attempts to convert, etc." (Id. ¶ 37). LeClair insisted that a list of approximately 6,000 stores provided to Success - including the 1,222 "Nielsen" stores - be "fully exhausted" before Success contacted additional stores. (Id. ¶¶ 40, 48).
The requirement of exhausting Nielsen's stores before recruiting other similar stores posed a great risk that Success would not meet the GSA deadlines and affected its potential compensation because the GSA provided greater rewards for the conversion of new stores. (Id. ¶¶ 41, 44, 48-49). Accordingly, Success explained to Nielsen that the modification requiring exhaustion of the initial list "extend[ed] the project" and that it would be "appropriate that [the parties] note the change in the [GSA]." (Id. ¶ 55; see id. ¶¶ 56, 60, 61). On October 12, 2010, LeClair wrote to Success that its existing stores "should want to convert at about [a] 50-70%" rate and encouraged Success to "see how this plays out." (Id. ¶ 55). Subsequently, on October 26, 2010, in response to a communication in which Success complained that the "changes . . . profoundly change the scope, cost and retailer acceptance; not to mention the deliverables," LeClair stated, "We will provide an updated agreement." (Id. ¶ 63).
Nielsen made yet further changes to the scope of the GSA. For example, by the end of the project, Nielsen had "taken approximately 20% of the accounts Success was required to convert (or 150 stores) from the sample for its own benefit," which resulted in "nearly $450,000 in initial lost revenue . . . and another $1.35 million in data management fee losses to Success." (Id. ¶¶ 65-66). Nielsen also accepted only "[one] store per chain," even though Nielsen itself had recruited more than one store per chain. (Id. ¶ 67). In addition, Nielsen increased the store count for the conversion project from 1,222 to 1,292 stores without increasing Success's compensation. (Id. ¶ 68).
On October 28, 2010, Success wrote to Nielsen that, "[w]e cannot continue to accept these unilateral changes - we come in every day to a new rule/direction/dictate - how can we get anything done?" (Id. ¶ 69). Taylor responded, "I get it. Let me get back to you . . . in the mean time, keep getting it done." (Id.). Taylor then wrote that Success would "remain whole" and that Nielsen was "going to be fair on . . . expectations." (Id. ¶¶ 70, 71).
On December 2, 2010, Taylor responded to a Success claim that it had identified 350 stores and that the delays were due to Nielsen's changes by stating: "We want to discuss amending the payment schedule/formula and hope to work with you collaboratively on that. We understand time is of the essence, one reason we are focused on meeting and making progress on Friday." (Id. ¶ 79).
According to Success, on or about December 10, 2010, "the parties reached some agreement regarding the amendments to the GSA" regarding deadlines and payments. (Id. ¶¶ 81-82). Subsequently, on January 3, 2011, Taylor provided a draft GSA amendment to LeClair for review, but he did not share it with Success. (Id. ¶ 89).
That amendment indicated that Nielsen would pay Success an additional $150,000 and modified the GSA's "schedule, fees and cost schedules." (See id. ¶ 90).
From December 3, 2010, through July 2011, Scott Sottile ("Sottile"), a Success employee, sent anonymous emails to individuals at Nielsen, including Taylor and LeClair, claiming that Success had provided fabricated data to Nielsen. (See id. ¶¶ 94, 100, 103, 105-06, 108-09, 113-20, 129-36, 139). In one such email to Taylor and LeClair, dated February 16, 2011, Sottile stated, "I have some information you need to know about Success [] but I need some assurances from you first." Taylor responded that "[t]his is not how Nielsen does business," but nevertheless instructed Sottile to "please feel free to call my cell phone." After a "back and forth" email exchange in which Taylor promised not to reveal Sottile's identity, Sottile wrote that Success was able to send Nielsen "perfect data" because Success's President "forces us to fabricate the missing data so it looks perfect to you." (Id. ¶ 106).
Prompted by the Sottile communications, Nielsen conducted an "independent investigation" of the data provided by Success and determined "that the data was good." (Id. ¶ 141; see id. ¶¶ 121, 123). Specifically, the investigation did not reveal "any cases of duplicated data, or evidence of highly smooth data that would suggest an elementary imputation to plug for missing data." (Id. ¶ 123). Nielsen did not inform Success about its communications with Sottile and continued to conceal them even after Success instructed Nielsen, on March 23, 2011, to remove Sottile from the distribution lists regarding the conversion project. (Id. ¶¶ 127-28, 239).
On February 17, 2011, after Sottile began communicating anonymously with Nielsen, Success wrote to Taylor indicating that the parties had agreed in December to a series of changes to the GSA. Taylor responded, "I totally agree," stating further that providing an amended GSA to Success was "a priority." (Id. ¶ 143).
Nielsen revealed its true intent not to amend the GSA in March 2011. On March 25, LeClair wrote to Success that "[a]ny representation from Nielsen from the past is no longer valid here as we are both working toward a new scope and deal." (Id. ¶ 162; see id. ¶ 161). That same month, Nielsen began to have other vendors collect the data at certain stores, using equipment that had been installed by Success. (Id. ¶¶ 163, 165). Nielsen also began calling stores directly that had services agreements with Success. (Id. ¶ 166). In addition, Nielsen reduced the number of stores that Success was to deliver from 1,222 to 484. (Id. ¶ 167).
II. Procedural Background
After Nielsen filed its original complaint on April 29, 2011, (ECF No. 1), Success filed a motion to dismiss, (ECF No. 13), which Judge Jones denied on January 16, 2012. The Nielsen Co. (US), LLC v. Success Systems, No. 11 Civ. 2939 (BSJ) (FM), ___ F. Supp. 2d ___, 2012 WL 124592, at *1 (S.D.N.Y. Jan 17, 2012). Following that decision, on March 19, 2012, I granted the parties' applications to amend their pleadings and directed that Nielsen file its Amended Complaint by March 23, with Success to file its Answer and Counterclaims by March 30, 2012. I further directed that Nielsen serve and file its answer to the Counterclaims, or move for their dismissal, by April 6, 2012. (ECF No. 50). The Amended Complaint ultimately was filed on March 26, 2012. (ECF No. 53). Following an extension of time, Success filed its Answer and Counterclaims on April 13, 2012. (ECF Nos. 54, 58).
Among the counterclaims asserted by Success is a counterclaim against Nielsen alleging fraud. (Countercl. ¶¶ 233-46 (Count IV)). In support of that claim, Success alleges that Nielsen "made material modifications" to the GSA after it was entered into by Nielsen and Success, "thereby changing the cost and time needed by Success for performance." (Id. ¶ 234). Success alleges that between October 2010 and February 2011, LeClair and Taylor repeatedly communicated falsely to Success that Nielsen would modify and "make equitable adjustments" to the GSA. (Id. ¶ 235). According to Success, "[w]hen making these representations," LeClair and Taylor "knew them to be false." (Id. ¶ 243). Success asserts that, "[b]y making these fraudulent representations, Nielsen, through LeClair and Taylor, intended to defraud Success by inducing Success to continue performing under the GSA." (Id. ¶ 244). Success further alleges that Nielsen intentionally concealed its communications with Sottile in an effort to induce Success to continue performing under the GSA. (Id. ¶¶ 240-41). Finally, Success alleges that it "reasonably relied on Nielsen's false representations," "continued to perform under the GSA," and "was damaged as a result of its reliance." (Id. ¶¶ 245-46).
By letter dated April 20, 2012, Success sought leave to file a motion to add LeClair and Taylor as defendants in its counterclaim against Nielsen for fraud. Following a telephonic conference, I directed that Success file that motion by May 11, 2012. (ECF No. 63). I later directed, by memorandum endorsement dated May 30, 2010, that Nielsen serve its opposition papers by June 20, and that Success file its reply papers by June 27, 2012. (ECF No. 69). Both sides complied with these deadlines. (See ECF Nos. 71 ("Nielsen Opp'n"), 72 ("Success Reply")). The motion therefore is fully submitted.
III. Discussion
A. Standard to Add Counterclaim Defendants
A motion to amend is governed by Rule 15(a) of the Federal Rules of Civil Procedure, which states that a "court should freely give leave when justice so requires." Fed. R. Civ. P. 15(a); see N.H. Ins. Co. v. Total Tool Supply, Inc., 621 F. Supp. 2d 121, 123 (S.D.N.Y. 2009) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). "Notwithstanding the liberality of the general rule, 'it is within the sound discretion of the court whether to grant leave to amend.'" Am. Home Assurance Co. v. Merck & Co., Inc., No. 03 Civ. 3850 (VM) (JCF), 2004 WL 2149103, at *1 (S.D.N.Y. Sept. 24, 2004) (quoting John Hancock Mut. Life Ins. Co. v. Amerford Int'l Corp., 22 F.3d 458, 462 (2d Cir. 1994)).
Pursuant to Rule 13(h) of the Federal Rules, an application to add counterclaim defendants is further subject to Rules 19 and 20. See Fed. R. Civ. P. 13(h). Rule 19 relates to required joinder and is not relevant here. See id. R. 19. Rule 20(a) sets forth two prerequisites that must be met for joinder to be proper. See id. R. 20(a)(2); Deskovic v. City of Peekskill, 673 F. Supp. 2d 154, 159 (S.D.N.Y. 2009); Cline v. 1-888-Plumbing Group, Inc., No. 99 Civ. 1401 (RJW), 2000 WL 342689, at *1 (S.D.N.Y. Mar. 30, 2000). First, the right to relief asserted against each defendant must relate to or arise "out of the same transaction, occurrence, series of transactions or occurrences." Fed. R. Civ. P. 20(a)(2)(A). Second, there must be some "question of law or fact common to all defendants." Id. R. 20(a)(2)(B). In assessing whether the requirements of Rule 20(a)(2) are met, a court must accept the factual allegations in a complaint as true. See Viada v. Osaka Health Spa, Inc., 235 F.R.D. 55, 61 (S.D.N.Y. 2006) ( "[W]he[n] there has not been a trial and no facts developed during the pretrial discovery phase of the litigation have been presented to the Court for analysis . . . , the Court is required to accept the [factual] allegations made by the plaintiffs in their complaint and assume that all the matters alleged by them in the complaint are true and provable."). The party seeking joinder, however, bears the burden of demonstrating that joinder is warranted under Rule 20. See Deskovic, 673 F. Supp. 2d at 159; Kehr ex rel. Kehr v. Yamaha Motor Corp., U.S.A., 596 F. Supp. 2d 821, 827 (S.D.N.Y. 2008).
Rule 21 further defines the scope of Rule 20. Giorgio Morandi, Inc. v. Textport Corp., 761 F. Supp. 12, 13-14 (S.D.N.Y. 1991); see also Cline, 2000 WL 342689, at *1 (Rule 21 "does not apply unless [the party seeking joinder] is unable to satisfy the prerequisites of permissive joinder under Rule 20(a)"). Under Rule 21, a party may be added to an action "at any time, on just terms." Fed. R. Civ. P. 21. In deciding whether to allow joinder, the Court is guided by the same standard of liberality afforded to motions to amend pleadings under Rule 15(a). Rissman v. City of N.Y., 01 Civ. 6284 (SHS) (DF), 2001 WL 1398655, at *1 (S.D.N.Y. Nov. 9, 2001).
Although various rules regulate Success's motion to add counterclaim defendants, "there is in practical terms little difference [among] them." Savine-Rivas v. Farina, No. CV-90-4335 (CPS), 1992 WL 193668, at *2 (E.D.N.Y. Aug. 4, 1992); see Kalman v. Berlyn Corp., 914 F.2d 1473, 1479 (Fed. Cir. 1990) (same standard applies whether party is added under Rule 15 or Rule 21); First City Nat'l Bank v. Fed. Deposit Ins. Co., 730 F. Supp. 501, 515 (E.D.N.Y. 1990) (noting that recent decisions "favor liberal application of Rule 15 to permit joinder" of defendants). Each of the rules leaves the decision whether to permit amendment to the court's discretion. Savine-Rivas, 1992 WL 193668, at *2. Leave to amend therefore may be denied when there has been a showing of undue delay, bad faith, futility, or prejudice. Weg v. Macchiarola, 729 F. Supp. 328, 340 (S.D.N.Y. 1990); Savine-Rivas, 1992 WL 193668, at *2; see also Midlantic Commercial Co. v. Prime Sportswear Corp., No. 95 Civ. 10192 (SWK), 1996 WL 361539, at *5 (S.D.N.Y. June 27, 1996) ("In deciding whether permissive joinder is warranted, a court should determine whether the requirements of Rule 20 are satisfied, and then weigh any considerations relevant to efficient adjudication such as the potential for delay and unfair prejudice.").
B. Application of Law to Facts
Applying these principles, although Success's claims meet both threshold requirements for joinder listed in Rule 20(a)(2), its motion to join LeClair and Taylor must nevertheless be denied as futile for the reasons set forth below.
The "transactions or occurrences" requirement of Rule 20(a)(2) is satisfied because Success alleges that LeClair and Taylor each engaged in acts that form the basis of Success's fraud claim against Nielsen and thereby caused Success to suffer damages. Specifically, Success alleges that after the GSA was executed, LeClair and Taylor falsely represented to Success that Nielsen would modify the GSA, that Success relied on those representations to continue to perform under the GSA, and that it suffered damages as a consequence. Success also has met the Rule 20(a)(2) requirement that some common question of law or fact apply to Nielsen and to proposed defendants LeClair and Taylor because Success alleges that LeClair and Taylor made misrepresentations to induce Success to continue performing under the GSA for Nielsen's benefit.
As noted above, even if both requirements of Rule 20(a)(2) have been met, a motion to amend may be denied on the ground of futility if the amendment could not withstand a motion to dismiss. See Am. Home Assurance Co., 2004 WL 2149103, at *2 (citing Oneida Indian Nation of N.Y. v. City of Sherrill, N.Y., 337 F.3d 139, 168 (2d Cir. 2003)). Here, Nielsen argues that the application to add LeClair and Taylor as counterclaim defendants should be denied as futile because the facts alleged in Success's counterclaims do not raise a sufficiently strong inference of their fraudulent intent. (Nielsen Opp'n at 2, 4-6).
Nielsen additionally contends that Success's application to add LeClair and Taylor as counterclaim defendants should be denied based on "[o]ther [f]actors," including Success's alleged delay and retaliatory motivation for bringing the motion, and the fact that the addition of these defendants would provide no further protection to Success because Success will be able to secure "complete relief" from Nielsen if it prevails in this suit. (Nielsen Opp'n at 8-9). Because Success's motion fails on futility grounds, there is no need to address these additional contentions.
As an initial matter, although officers and directors of a corporation generally cannot be held individually liable under New York law for corporate obligations, in actions for fraud they "may be held individually liable if they participated in or had knowledge of the fraud, even if they did not stand to gain personally." Buy This, Inc. v. MCI Worldcom Communic'ns, Inc., 209 F. Supp. 2d 334, 342 (S.D.N.Y. 2002) (citing Polonetsky v. Better Homes Depot, Inc., 97 N.Y.2d 46, 55 (2001)); see Cohen v. Koenig, 25 F.3d 1168, 1173 (2d Cir. 1994) ("officers and directors of a corporation may be held liable for fraud if they participate in it or have actual knowledge of it") (quoting People v. Apple Health & Sports Clubs, Ltd., 80 N.Y.2d 803, 807 (1992) (internal brackets omitted)); E-Lionheart Associates, LLC v. Alkane, Inc., No. 10 Civ. 2781 (VB), 2011 WL 5346101, at *2 (S.D.N.Y. Nov. 7, 2011); Liberty Mut. Ins. Co. v. Fast Lane Car Serv., Inc., 681 F. Supp. 2d 340, 348 (E.D.N.Y. 2010). Tellingly, although Nielsen's papers reiterate that a corporation can only act through its employees, Nielsen does not argue that the addition of LeClair and Taylor as defendants would be futile because they cannot, as a matter of law, be held individually liable for any fraud by Nielsen. (See Nielsen Opp'n at 1). Indeed, since Success alleges that LeClair and Taylor each personally made misrepresentations and omissions to Success, their positions as managers at Nielsen would not alone afford a basis for dismissal. See Cohen, 25 F.3d at 1173; Hughes v. BCI Int'l Holdings, Inc., 452 F. Supp. 2d 290, 302 (S.D.N.Y. 2006); JP Morgan Chase Bank v. Winnick, 350 F. Supp. 2d 393, 399, n.6 (S.D.N.Y. 2004); Vaughn v. Consumer Home Mortg., Inc., No. 01-CV-7937 (ILG), 2003 WL 21241669, *6 (E.D.N.Y. Mar. 23, 2003); cf. Apex Mar. Co., Inc. v. OHM Enters. Inc., No. 10 Civ. 8119 (SAS), 2011 WL 1226377, at *3 (S.D.N.Y. Mar. 31, 2011) (complaint failed to state a claim against officers of a corporation because it did "not separately set forth the fraudulent acts perpetrated by [the officers]"). There nevertheless is a question as to whether Success has alleged fraud on the part of LeClair and Taylor with sufficient particularity.
To state a claim for common law fraud under New York law, a plaintiff must show: (1) a material representation or omission of fact; (2) made with knowledge of its falsity; (3) with an intent to defraud; (4) upon which the plaintiff reasonably relied; and (5) that such reliance caused damage to the plaintiff. Anwar v. Fairfield Greenwich, Ltd., 728 F. Supp. 2d 372, 414 (S.D.N.Y. 2010); Morris v. Castle Rock Entm't, Inc., 246 F. Supp. 2d 290, 296 (S.D.N.Y. 2003); HealthExtras, Inc. v. SG Cowen Secs. Corp., No. 02 Civ. 9613 (RO), 2004 WL 97699, at *1 (S.D.N.Y. Jan. 20, 2004).
A claim for common law fraud brought under New York law in federal court is further subject to the particularity requirements of Rule 9(b) of the Federal Rules of Civil Procedure. See Marcus v. Frome, 329 F. Supp. 2d 464, 475 (S.D.N.Y. 2004); AIG Global Secs. Lending Corp. v. Banc of Am. Secs. LLC, 254 F. Supp. 2d 373, 389 (S.D.N.Y. 2003). The Second Circuit has "read Rule 9(b) to require that a complaint '(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.'" Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)).
Although "[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged generally," Fed. R. Civ. P. 9(b), "conclusory allegations that . . . conduct was fraudulent or deceptive are not enough." Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 114 (2d Cir. 1982); see Musalli Factory For Gold & Jewellry v. JPMorgan Chase Bank, N.A., 261 F.R.D. 13, 19 (S.D.N.Y. 2009). Indeed, a party alleging fraud must "plead sufficient facts to raise a 'strong inference' of fraudulent intent." Glidepath Holding B.V. v. Spherion Corp., 590 F. Supp. 2d 435, 454 (S.D.N.Y. 2007); see Campaniello Imps., Ltd. v. Saporiti Italia S.p.A., 117 F.3d 655, 663 (2d Cir. 1997). A strong inference of fraudulent intent may be established by alleging either (1) "facts to show that defendants had both motive and opportunity to commit fraud," or (2) "facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290-91 (2d Cir. 2006) (citing Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)).
Nielsen contends that Success's motion should be denied as futile because the facts alleged in Success's counterclaims do not raise a sufficiently strong inference of fraudulent intent on the part of Taylor and LeClair. (Nielsen Opp'n at 2, 4-7). Success counters that it has established fraudulent intent through "facts [that] demonstrate 'strong circumstantial evidence of conscious behavior or recklessness.'" (Success Reply at 1). To prevail on a recklessness theory, Success must allege conduct that "is highly unreasonable and . . . constitutes an extreme departure from the standards of ordinary care to the extent that the danger was either known to defendants or so obvious that defendants must have been aware of it." Lewin v. Lipper Convertibles, L.P., No. 03 Civ. 1117 (RO), 2004 WL 1077930, at *1 (S.D.N.Y. May 13, 2004) (citing Rolf v. Blyth, 570 F.2d 38, 47 (2d Cir. 1978)).
Success apparently does not claim that it has established a strong inference of fraudulent intent based on motive and opportunity. When pleading intent based on motive and opportunity, "[m]otive would entail concrete benefits that could be realized by one or more of the false statements and wrongful nondisclosures alleged. Opportunity would entail the means and likely prospect of achieving concrete benefits by the means alleged." Shields, 25 F.3d at 1130; accord Glidepath Holding B.V., 590 F. Supp. 2d at 454. In its Reply, Success acknowledges that it "has not alleged that . . . LeClair and Taylor received 'concrete benefits' from their fraudulent misrepresentations," but notes that Success "may establish intent by alleging facts demonstrating either prong." (Success Reply at 1, 2 (emphasis in original)). Accordingly, Success maintains that it "does not have to allege any [concrete] benefit was received by [] LeClair and Taylor" because Success has established fraudulent intent through strong circumstantial evidence of conscious behavior or recklessness. (Id. at 1). --------
Success essentially alleges that after LeClair and Taylor helped negotiate the GSA, they changed the scope of the project during performance and promised to amend the GSA to account for those changes, but never intended to modify the GSA and concealed the fact that Nielsen was being influenced by its communications with Sottile. (See Success Mem. at 12; Success Reply at 4).
Success's Counterclaims set forth several allegedly fraudulent representations made by LeClair or Taylor. Certain of these statements relate to changes to the scope of Success's performance communicated by LeClair after the execution of the GSA. (Success Mem. at 3-6). These statements are as follows:
(1) a statement in LeClair's email dated October 11, 2010, that Success must "exhaust all avenues against [Nielsen's] 6000 stores" before contacting new stores (id. at 4 (citing Countercl. ¶ 38));Success has failed to specify, however, the ways in which these statements allegedly were fraudulent, much less how they give rise to a strong inference of fraudulent intent. As Nielsen observes, Success's Counterclaims acknowledge that the GSA permitted Nielsen to change the scope of the work, and that an equitable adjustment was required only if there was a "significant" change in cost or time for performance. (See Nielsen Opp'n at 6 (citing Countercl. ¶ 32)). Thus, without more, these statements do not raise a strong inference of fraudulent intent.
(2) a statement in LeClair's email dated October 12, 2010, reiterating that the stores provided to Success had to be "fully exhausted" before Success could contact new stores (id. (citing Countercl. ¶ 40)); and
(3) LeClair's email in response to Success's protests, dated O ctober 12, 2010, stating that existing stores "should want to convert at about [a] 50-70% rate," and that Success should "see how this plays out" (id. (citing Countercl. ¶ 55)).
Success additionally contends that LeClair and Taylor made several fraudulent statements that the GSA would be modified (Success Mem. at 5-6, 10, 16), including:
(1) LeClair's statement, on or about October 26, 2010, that "[w]e will provide an updated agreement" (Countercl. ¶ 63);Success further maintains that LeClair and Taylor fraudulently failed to inform Success that Nielsen was communicating with, and receiving confidential information from, Sottile. (Id. ¶¶ 106-08, 120, 143; Success Mem. at 8-12, 16). Success maintains that it was induced to continue performing under the GSA only because of the assurances by LeClair and Taylor that the GSA would be modified, and that Nielsen all the while had "no intention of providing Success with an amended GSA and" intended to sue Success "based solely upon" communications with "Sottile, notwithstanding Nielsen's conclusions that [] Sottile's allegations lacked merit." (Countercl. ¶ 177; see Success Mem. at 12).
(2) LeClair' statement to Success, on October 28, 2010, that, "[y]ou will remain whole . . ." (id. ¶ 70);
(3) Taylor's response to Success's complaints, on October 28, 2010, stating, "I get it. Let me get back to you . . . in the mean time, keep getting it done" (id. ¶ 69), and that "[w]e are going to be fair on . . . expectations" (id. ¶ 71);
(4) Taylor's statement, on December 7, 2010, that "[w]e want to discuss amending the payment schedule/formula and hope to work with you collaboratively on that. We understand time is of the essence, one reason we are focused on meeting and making progress on Friday" (id. ¶ 79); and
(5) Taylor's statement, on or about February 17, 2011, indicating that he "totally agree[d]" with a representation that Success and Nielsen had agreed to changes in the GSA in December 2010, and that providing an amended GSA to Success was "a priority" (see id. ¶ 143).
The allegation concerning Nielsen's intent appears to be wholly conclusory. In any event, even if all of Success's allegations are accepted as true, they do not represent, either alone or in combination, such an "extreme departure" from ordinary standards of care that they rise to the level of conscious misbehavior or recklessness. Of course, "the failure to fulfill a promise to perform future acts," (or statements of future intent) can support a fraud action provided that "there existed [an] intent not to perform at the time the promise was made." Cohen, 25 F.3d at 1172 (citations omitted). Here, several facts alleged in the Counterclaims belie the notion that Taylor or LeClair did not intend to modify the GSA at the time of the allegedly fraudulent statements or omissions. For example, Success alleges that on November 23, 2010, Taylor sent an email to Nielsen employees stating that "we need to reconfirm our timing and payment expectations" and "ensure we have a formal alignment." (Countercl. ¶ 76). Success acknowledges that this internal email is "[c]onsistent with [Nielsen's] representations to Success that it would modify the GSA." (Success Mem. at 5).
Success further alleges that, on or about December 13, 2010, Taylor sent an email to LeClair indicating that "we changed things that impacted time line and equipment cost" and that LeClair indicated his agreement in a response. (See Countercl. ¶ 84). More significantly, Success concedes that Taylor in fact drafted a formal amendment to the GSA during the period that he was encouraging performance under the GSA. Indeed, that amendment was provided to LeClair for his review. (Countercl. ¶¶ 86-90).
In light of these facts, Success has not plausibly alleged that LeClair or Taylor lacked an intention to modify the GSA at the time they made promises to do so. Indeed, if anything, the facts pleaded by Success suggest that LeClair and Taylor had every intention of modifying the GSA to ensure that Nielsen was protected adequately.
Turning to LeClair's and Taylor's allegedly fraudulent failure to inform Success of Nielsen's communications with Sottile, Success's conclusory assertions of fraud are plainly contradicted by its own admission that LeClair conducted an investigation and concluded that Sottile's accusations were false. (Countercl. ¶¶ 141, 145). It simply makes no sense that LeClair and Taylor would cause Nielsen to renege on its agreement with Success, and encourage Nielsen to sue Success, based on accusations that they knew were false.
In sum, none of the statements and omissions relied upon by Success furnish a basis for a strong inference of fraudulent intent. See Musalli Factory For Gold & Jewellry, 261 F.R.D. at 21-22; Stair v. Calhoun, No. 07-CV-03906 (JFB) (ETB), 2009 WL 792189, at *13-14 (E.D.N.Y. Mar. 23, 2009). Absent such an inference, the proposed amendment is futile.
IV. Conclusion
For the reasons set forth above, the Success's motion to add LeClair and Taylor as counterclaim defendants (ECF No. 66) is denied.
SO ORDERED. Dated: New York, New York
August 13, 2012
/s/_________
FRANK MAAS
United States Magistrate Judge Copies to: Hon. Barbara S. Jones
United States District Judge Brian Eugene Moran, Esq.
Robinson & Cole LLP
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Suite 1900
New York, NY 10177 Elizabeth L. Branch, Esq.
Smith Gambrell & Russell, LLP
1230 Peachtree Street, N.E.
Atlanta, GA 30309