Opinion
Case No. 3:04CV7486.
March 1, 2005
ORDER
This is a multi-count case brought by plaintiff Timothy R. Osborn against the Knights of Columbus, Knights of Columbus as the Administrator of the Knights of Columbus Agents Pension Plan, and Knights of Columbus as the Administrator of the Knights of Columbus Employee Health Benefit Plan (KofC). Plaintiff's complaint, which includes nine counts, alleges: breach of contract, violation of the Connecticut wage and hours statute, fraud, conversion, defamation, intentional interference with contract, injunctive relief, ERISA violations, and COBRA violations.
Plaintiff is a citizen of Ohio. Defendants are Connecticut corporations with principal places of business in Hartford, Connecticut. This court has jurisdiction pursuant to 28 U.S.C. § 1132. Venue is appropriate in this District pursuant to 28 U.S.C. § 1391.
Defendants have filed a motion pursuant to Fed.R.Civ.P. 12(b)(5) to dismiss all the claims for failure to properly serve defendant. Defendants also have moved pursuant to Fed.R.Civ.P. 12(b)(6) to dismiss counts one (in part), two, three, four, five, six, and seven of plaintiff's complaint for failure to state a claim.
After being served with defendants' motion to dismiss, plaintiff acknowledged Counts four (conversion), six (intentional interference with contract), and seven (Injunctive Relief), are properly subject to dismissal. After receiving proper service, defendant withdrew its motion to dismiss plaintiff's complaint for insufficiency of service of process.
Currently pending, therefore, is defendants' motion to dismiss counts one, in part (recovery of punitive damages for breach of contract), two (Connecticut wage statute), three (fraud), and five (defamation).
For the following reasons, defendants' motion shall be granted in part and denied in part.
Background
Defendants are a fraternal benefit society, organized as a non-profit corporation in Connecticut. Defendants sell insurance through field agents to their members and their families within assigned territories.
On May 1, 1999, plaintiff Osborn and KofC signed a contract authorizing Osborn to solicit and procure insurance applications from assigned members of KofC. The contract entitled Osborn to commissions, which vested after five consecutive years of service, based on the premium payments procured from members of KofC. The contract included a covenant restricting field agents, like plaintiff, from attempting to solicit insurance applications from another insurer within one year after termination of the contract. The contract also contained a provision reflecting the parties' choice of Connecticut law to govern and interpret the agreement.
On August 31, 2003, Osborn resigned as field agent for KofC. Osborn claims that KofC thereafter implemented a scheme to deprive him of commissions he had earned under the contract. Osborn further contends that KofC misrepresented facts in order to persuade members to cancel policies purchased from Osborn. In addition, Osborn claims KofC officials engaged in fraudulent and illegal practices and threatened termination when Osborn complained of such acts.
Discussion Standard of Review
A motion to dismiss, pursuant to Fed.R.Civ.P. 12(b)(6), questions the sufficiency of the pleadings. "[T]he court must consider as true the well-pleaded allegations of the complaint and construe them in the light most favorable to the plaintiff." Varljen v. Cleveland Gear Co., 250 F.3d 426, 429 (6th Cir. 2001). No complaint shall be dismissed "unless it appears beyond doubt that plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d 674, 679 (6th Cir. 1998) (quoting Conley v. Gibson, 355 U.S. 41, 45 (1957)). The court, however, "need not accept as true legal conclusions or unwarranted factual inferences." Gregory, 220 F.3d at 446.
1. Count One: Recovery of Punitive Damages for Breach of Contract
Osborn seeks to recover punitive damages for defendants' alleged breach of contract. Pursuant to the parties' choice of law agreement, Connecticut law governs this claim.
Connecticut courts rarely award punitive damages for breach of contract. Barry v. Posi-Seal Int'l, Inc., 672 A.2d 514, 519 (Conn.App.Ct. 1996). "This is so," the court stated in Barry, "because . . . punitive . . . damages are assessed by way of punishment, and the motivating basis does not usually arise as a result of the ordinary private contract relationship." Id. at 519 (citing L.F. Pace Sons, Inc. v. Travelers Indemnity Co., 514 A.2d 766, 775 (Conn.App.Ct. 1986)).
Punitive damages, however, are available in a breach of contract action if plaintiff alleges tortious conduct that is malicious, willful, or reckless. Id.; see also Triangle Sheet Metal Works, Inc. v. Silver, 222 A.2d 220, 225 (Conn.App.Ct. 1966). The underlying tortious conduct can be express or implied. L.F. Pace Sons, Inc., 514 A.2d at 775. Conclusory allegations of purposeful, wanton, and willful acts, without supporting allegations, are not, however, an adequate basis for recovering punitive damages for breach of contract. Precision Computer Servs., Inc. v. McIlmurray, 2002 WL 318256, at *3 (Conn.Super.Ct. Dec. 12, 2001).
In paragraphel even of his complaint, Osborn alleges that KofC failed to remit earned and accrued commissions owed to him. Osborn also alleges in paragraph eleven that defendants "wrongfully assigned deductions and offsets to monies due" to Osborn, despite his protests. Osborn contends in paragraph six of his complaint that KofC forged documents and engaged in other illegal conduct so as to withhold these commissions.
Construing the complaint in the light most favorable to Osborn, alleged acts of forgery and other illegal conduct of defendants could be construed as malicious, willful, or reckless. Therefore, defendants' motion to dismiss plaintiff's claim for punitive damages for breach of contract shall be denied. Furthermore, because Osborn's claim for punitive damages for breach of contract remains I do not reach the issue of whether Osborn's claim for attorney's fees should be dismissed.
2. Count Two: Violation of Connecticut Wage and Hours Statute
In his second count, Osborn seeks relief under the Connecticut wage and hours statute for defendants' failure to pay wages and commissions owed to him. When an employer fails to pay an employee in accordance with the provisions of the Connecticut wage and hours statute, the employee may recover unpaid wages, attorney's fees and costs, and a penalty equal to double the amount of the unpaid wages. Conn. Gen. Stat. § 31-72.
The plaintiff's premise — that the Connecticut wage and hour statute governs — is erroneous, even though the parties' agreement states that their contractual arrangement is to be governed by Connecticut law.
State wage and hours statutes govern employees in the state in which they are employed. Osborn's territory as a field agent of KofC was in Ohio, which has its own wage and hours statute governing persons employed in this State. See Ohio Rev. Code Ann. § 4113.15. Thus, the Ohio, rather than the Connecticut, statute applies to employment (and employees) in Ohio.
This is so, notwithstanding the parties' contractual agreement that Connecticut law applies to their contract. Under Connecticut law, "[i]ndividuals employed outside the state of Connecticut are subject to the wage payment laws of the states in which they are employed and are not afforded the protection of the Connecticut statute." Kubas v. Hartford Fin. Servs. Co., 2000 WL 1170237 at *2 (Conn.Super.Ct. July 19, 2000).
Count Two shall, accordingly, be dismissed.
3. Count Three: Fraud
In diversity cases involving tort claims, the choice of law rules of the state in which the district court sits control. Phelps v. McClellan, 30 F.3d 658, 661 (6th Cir. 1994). In Ohio, tort claims are governed by the law of the state in which the injury was committed unless a party shows that "another state has a more significant relationship to the action." Muncie Power Prods. v. United Techs. Auto., Inc., 328 F.3d 870, 874 (6th Cir. 2003). The plaintiff resided and worked in Ohio at the time of injury and his injury relates to his employment; therefore, Ohio tort law will be applied to the instant case.
Plaintiff's claim of fraud embodies three sub-claims: namely, fraud relating to a) withheld commissions; b) clients; and c) future employment.
Defendants maintain that Osborn's claim of fraud should be dismissed because his allegations do not include all the elements of fraud and, in any event, are not pled with particularity, as required by Fed.R.Civ.P. 9(b).
The elements of a fraud in Ohio are:
(a) A representation, or where there is a duty to disclose, concealment of a fact,
(b) Which is material to the transaction at hand,
(c) Made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred,
(d) With the intent of misleading another into relying upon it,
(e) Justifiable reliance upon the representation or concealment, and
(f) A resulting injury proximately caused by the reliance.Graham v. Am. Cyanamid Co., 350 F. 3d 496, 507 (6th Cir. 2003) (quoting Russ v. TRW, 59 Ohio St. 3d 42, 49 (1991)).
Particularity under Rule 9(b) has been defined as the time, place, and contents of the misrepresentation, the identity of the person making the misrepresentation, and what was given up or received as a result of the misrepresentation. ABC Arbitrage Plaintiffs Group v. Tchuruk, 291 F.3d 336, 349 (5th Cir. 2002). "Generalized or conclusory allegations that the [d]efendants' conduct was fraudulent do not satisfy Rule 9(b)." Bovee v. Coopers Lybrand C.P.A, 272 F.3d 356, 360 (6th Cir. 2001).
For the reasons that follow, I conclude that plaintiff's allegations of fraud are insufficient.
a. Fraud Relating to Withheld Commissions
Under Osborn's contract with KofC, Osborn was entitled to commissions based on his sales of insurance policies. When Osborn's employment ended, he believed he was entitled to certain commissions not yet paid to him. On Osborn's inquiry as to exact amounts of the commissions owed to him by KofC, KofC assured him that he would receive all commissions to which he was entitled.
Paragraph nineteen of plaintiff's complaint alleges that KofC misrepresented his commissions by placing the schedule of commissions in his contract and then failing to pay all the commissions that he believes he is owed.
Osborn and KofC do not agree on the amount of commissions owed to Osborn. Mere disagreement does not rise to the level of detrimental reliance by Osborn — one of the elements of fraud his complaint must allege with particularity. Because he has failed to plead a necessary element with requisite particularity, his claim of fraud relative to his commissions fails.
b. Fraud Relating to Clients
In paragraphs twenty-two and twenty-three of his complaint, Osborn makes allegations of fraud relating to three clients: Baird, Goebel, and Meyers. Osborn claims KofC and their agents engaged in a fraudulent scheme that caused insurance policies to be reissued to two of his former clients and cancelled by one of his former clients. Osborn also claims KofC made false statements to his former clients to induce them to change the status of their policies which decreased or obviated Osborn's sales commissions on those policies.
While Osborn may have lost some of his commissions due to the reissuance or cancellation of his clients' policies by other agents, the allegedly false statements on which he claims detrimental reliance were made to his former clients, not to him, and thus he has no false statement on which he could have detrimentally relied. That his clients may have relied on false statements to their detriment does not mean that he was defrauded. This aspect of his fraud claim must be dismissed.
c. Fraud Relating to Future Employment
Paragraph twenty-three of plaintiff's complaint alleges that KofC defrauded him by making false statements to Northwestern Mutual, a possible future employer. While Osborn names particular people he believes made false statements, he has failed to demonstrate when or how his reliance on their false statements caused his injury. If false statements by KofC to Northwestern Mutual caused him to lose an employment opportunity, he may have been injured but his injury did not result from reliance on his part on those statements. This component of plaintiff's fraud claim must likewise be dismissed.
Count Five: Defamation
Paragraph thirty-eight alleges that KofC and their agents, with malice aforethought, intentionally made false and unprivileged allegations to plaintiff's clients and others of theft, conversion, and unethical insurance practices. Paragraph forty asserts that these statements kept the plaintiff from obtaining employment and caused financial hardship.
Defendants seek dismissal of plaintiff's defamation claim on the basis that he has failed to allege details pertaining to the defamatory statements or that the statements were unprivileged.
To succeed on a claim of defamation in Ohio, a plaintiff must prove:
(a) a false and defamatory statement concerning another;
(b) an unprivileged publication to a third party;
(c) fault amounting to at least negligence on the part of the publisher; and
(d) either actionability of the statement irrespective of special harm or the existence of special harm caused by the publication.Defiance Hosp., Inc. v. Fauster-Cameron Inc., 344 F. Supp. 2d 1097, 1119 (N.D. Ohio 2004) (quoting Akron-Canton Waste Oil, Inc. v. Safety-Kleen Oil, 81 Ohio App. 3d 591, 601 (1992)).
KofC contends that the defamation, if it in fact occurred, is not actionable under these facts because KofC held a qualified privilege which allowed them to make certain statements without defaming Osborn.
The determination of the existence of qualified privilege is a mixed question of law and fact that cannot be resolved at the pleadings stage. RE/MAX Int'l, Inc. v. Smythe, Cramer Co., 265 F. Supp. 2d 882, 892 (N.D. Ohio 2003). Construing the allegations in a light most favorable to Osborn, the alleged publication of the false statements was unprivileged.
Furthermore, in paragraph forty-one of his complaint, Osborn pled malice, which would overcome the defense of qualified privilege. U.S. Medical Corp. v. M.D. Buyline, Inc. 753 F. Supp.676, 680 (S.D. Ohio 1990).
Dismissal of Osborn's defamation claim is not proper under Rule 12(b)(6).
Conclusion
In light of the foregoing it is hereby
ORDERED THAT
1. Defendants' motion to dismiss plaintiff's claim for punitive damages for breach of contract be, and the same hereby is, denied;
2. Defendants' motion to dismiss plaintiff's claim for violation of the Connecticut wage statute be, and the same hereby is, granted;
3. Defendants' motion to dismiss plaintiff's claim for fraud be, and the same hereby is, granted;
4. Defendants' motion to dismiss plaintiff's claim for defamation be, and the same hereby is, denied;
5. Defendants' motion to dismiss plaintiff's claim for conversion be, and the same hereby is, granted;
6. Defendants' motion to dismiss plaintiff's claim for intentional interference with contract be, and the same hereby is, granted;
7. Defendants' motion to dismiss plaintiff's claim for injunctive relief be, and the same hereby is, granted.
So ordered.