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explaining that "a plaintiff may set forth both [breach of contract and unjust enrichment] in his Complaint, as alternative theories, in accordance with Fed. R. Civ. P. 8[d]"
Summary of this case from Bd. of Educ. of the Springfield City Sch. Dist. v. Comput. Automation Sys., Inc.Opinion
Case No. C-3-98-416
August 9, 1999
Richard Talda and Mark Anthony for plaintiff.
David Greer for defendant.
The instant litigation stems from the failure of a six-year business relationship between Plaintiff/Counterclaim Defendant Teknol, Inc., and Defendant/Counterclaimant Thomas Buechel, which came to an end in September, 1998. On September 21, 1998, Teknol filed a declaratory judgment action in this Court, seeking a declaration that Buechel materially breached his obligations as an independent contractor for Teknol, and that he is not entitled to any commissions on sales by any independent sales representative after September 30, 1998 (Doc. #1).
Buechel has filed a Counterclaim (Doc. #3), in which he asserts six claims for relief under state law, to wit: breach of contract (Count One); claim for violation of Wis. Stat. § 135.04 (Count Two); breach of agreement regarding "private label" products (Count Three); conversion and bad faith breach of contract (Count Four); promissory estoppel (Count Five); and unjust enrichment (Count Seven). Defendant/Counterclaimant also requests a declaratory judgment (Count Six). In his prayer for relief, Buechel seeks, in addition to the declaratory judgment, compensatory damages, punitive damages, attorney fees and costs.
The essence of the breach of contract claim in Count One is that Plaintiff withheld sales commissions and override commissions, in violation of their oral agreement.
Count Three is, essentially, a reiteration of a claim for breach of contract. It differs from Count One in that it appears to specify an additional way by which Teknol breached the oral contract between the parties, namely by engaging in a course of private label sales.
Pending before the Court is Plaintiff's Motion to Dismiss Defendant's Seventh Claim for Relief (Unjust Enrichment) and his Claim for Punitive Damages in his Counterclaim, pursuant to Fed.R.Civ.P. 12(b)(6) (Doc. #7). For the reasons assigned, Plaintiff's Motion is OVERRULED.
I. Standard Governing Plaintiff's Motion to Dismiss
When considering a motion to dismiss pursuant to Rule 12(b)(6), the court must "construe the complaint in the light most favorable to the [counterclaim] plaintiff, accept all factual allegations as true, and determine whether the [counterclaim] plaintiff undoubtedly can prove no set of facts in support of his claims that would entitle him to relief." Cline v. Rogers, 87 F.3d 176, 179 (6th Cir.) (citing In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993), cert. denied, 117 S.Ct. 510 (1996);see also Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Barrett v. Harrington, 130 F.3d 246 (6th Cir. 1997), cert. denied, 118 S.Ct. 1517 (1998) ("In considering a motion to dismiss for failure to state a claim, the Court is required to take as true all factual allegations in the complaint."); Lamb v. Phillip Morris, Inc., 915 F.2d 1024, 1025 (6th Cir. 1990), cert. denied, 498 U.S. 1086 (1991). However, the Court need not accept as true a legal conclusion couched as a factual allegation. Papasan v. Allain, 478 U.S. 265, 286 (1986). A well-pleaded allegation is one that alleges specific facts and does not merely rely upon conclusory statements. The Court is to dismiss the complaint "only if 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).
II. Analysis A. Unjust Enrichment
Teknol contends that Ohio law prohibits the pleading of quasi-contractual claims, such as unjust enrichment, as an alternative to breach of contract when such claims arise from the same subject matter. In response, Defendant argues that he has engaged in alternative pleading, which is permissible under Fed.R.Civ.P. 8, and that his unjust enrichment claim is necessary in the event that the oral contract between the parties is deemed unenforceable. The Court concurs with Defendant that he may plead, in the alternative, his unjust enrichment claim, and it concludes that dismissal is not appropriate at this time.
"An action for unjust enrichment will lie where a party retains money or a benefit that in equity or justice belongs to another."Eyerman v. Mary Kay Cosmetics, Inc., 967 F.2d 213, 222 (6th Cir. 1992) (citing Hummel v. Hummel, 133 Ohio St. 520, 14 N.E.2d 923, 926-27 (1938)). To assert a claim for unjust enrichment, the plaintiff must allege: (1) a benefit conferred by a plaintiff upon a defendant; (2) knowledge by the defendant of the benefit; and (3) retention of the benefit by the defendant under circumstances where it would be unjust to do so without payment. Hambleton v. R.G. Barry Corp., 12 Ohio St.3d 179, 465 N.E.2d 1298, 1302 (1984); Wildner Contracting v. Ohio Turnpike Comm'n, 913 F. Supp. 1031 (N.D.Ohio. 1996).
It is well-established that Ohio law does not permit recovery under the theory of unjust enrichment when an express contract covers the same subject. Ullmann v. May, 147 Ohio St. 468, 72 N.E.2d 63 (1947) (syllabus ¶ 4) ("In the absence of fraud or bad faith, a person is not entitled to compensation on the ground of unjust enrichment if he received from the other that which it was agreed between them the other should give in return."); Randolph v. New England Mut. Life Ins. Co., 526 F.2d 1383, 1387 (6th Cir. 1975); Baer v. Woodruff, 111 Ohio App.3d 617, 676 N.E.2d 1195, 1996 (Ohio App. 10 Dist. 1996) (quasi-contractual remedies unavailable if a valid and enforceable contract exists). There is conflicting authority in this district, however, as to whether a plaintiff may plead unjust enrichment as an alternative theory of recovery.
In United States v. Boeing Co., 184 F.R.D. 107, 112 (S.D.Ohio 1998) (Spiegel, J.), the government, after intervening in the action, asserted claims of breach of contract, unjust enrichment, payment by mistake and fraud against the defendant, Boeing. Boeing sought dismissal of the quasi-contractual claims of unjust enrichment and payment by mistake, asserting that government was precluded from raising them, because an express contract existed between the Boeing and the United States. Judge Spiegel rejected the defendant's argument and, instead, accepted the government's contention that it was permitted to plead, in the alternative, those common law claims, pursuant to Fed.R.Civ.P. 8.
Judge Kinneary, however, specifically rejected the argument that Rule 8(e)(2) permits a plaintiff to plead unjust enrichment and quantum meruit, stating that federal procedural rules cannot alter substantive rights and Ohio law does not permit quasi-contractual claims to be brought where the subject matter of the claims is governed by contract. Davis Tatera, Inc. v. Gray-Syracuse, Inc., 796 F. Supp. 1078, 1085-86 (S.D.Ohio 1992). In Davis, the court granted summary judgment to the defendant on plaintiff's claims of unjust enrichment and quantum meruit, stating that an agreement existed between the parties and that the only issue was whether the parties had agreed to modify the terms of that contract. It concluded that, as a matter of law, the plaintiff's claims were governed by the contract and that it could not prevail on its quasi-contractual claims.
Following Judge Kinneary's decision in Davis, Judge Merz dismissed a claim for unjust enrichment, pursuant to Fed.R.Civ.P. 12(b)(6), stating that, because the plaintiff had alleged an express contract, he could not proceed, in the alternative, on an unjust enrichment theory. Klusty v. Taco Bell Corp., 909 F. Supp. 516, 521 (S.D.Ohio 1995).
Although it is clear that a plaintiff may not recover on his unjust enrichment claim when it is coextensive with his breach of contract claim, this Court concludes that a plaintiff may set forth both causes of action in his Complaint, as alternative theories, in accordance with Fed.R.Civ.P. 8(e)(2). As stated above, the Supreme Court of Ohio expressed in Ullmann that a plaintiff may not recover under both the theory of unjust enrichment and breach of contract. However, Ullmann does not stand for the proposition that a plaintiff is precluded from pleading unjust enrichment in the alternative, particularly where there is some dispute over the existence or enforceability of the agreement. See Kabealo v. J.E. Grote Co., 1994 WL 411369 (Ohio App. 10 Dist. Aug. 9, 1994) (plaintiff could assert both breach of contract and quasi-contractual claims where reasonable minds could reach different conclusions as to whether an express contract existed between the parties). Rather, it provides that a plaintiff may not improve upon an improvident agreement, in the absence of fraud or bad faith, by seeking additional recovery under the theory of unjust enrichment. 147 Ohio St. at 476, 72 N.E.2d at 67.
Herein, in his Seventh Claim for Relief, Buechel asserts that Teknol has received, and continues to receive, a benefit from his activities on Teknol's behalf, which were performed pursuant to an alleged contract between the parties, and that it would be inequitable for Teknol to retain this benefit without fully compensating him (Doc. #3 ¶ 39-41). By these allegations, Defendant has set forth a counterclaim for unjust enrichment. In Count One of the Counterclaim, however, Buechel asserts that the parties have entered into an oral agreement, whereby Buechel was to be an independent contractor for Teknol.
That claim for relief states, in pertinent part:
39. Thomas Buechel's contract performance allowed Plaintiff to meet or exceed all sales goals established for Thomas Buechel.
40. Plaintiff knew that it had received a benefit from Thomas Buechel's activities on its behalf.
41. It would be inequitable for Plaintiff, which has been unjustly enriched, to retain this benefit without continued full compensation to Thomas Buechel as previously agreed upon.
42. By reason of the above-mentioned contract performance by Thomas Buechel, Plaintiff has become indebted to Thomas Buechel in an amount to be determined by the trier of fact under the doctrine of quantum meruit, and continues to be so indebted for so long as its products are sold by Thomas Buechel and his network of sales people.
Beuchel argues that Teknol disputes that a contract was created between them and, therefore, unjust enrichment is a viable alternative theory. In response, Plaintiff states in its Memorandum (Doc #7, p. 5) and in its Reply Memorandum (Doc. #12) that it agrees that an oral contract was created. Furthermore, Plaintiff's Answer to Beuchel's Counterclaims acknowledges the existence of an oral contract.
In support of that argument, Defendant notes that Plaintiff raises affirmative defenses in its Answer to Defendant's Counterclaim, including that Defendant's counterclaims are barred by the Statute of Frauds.
The Court also notes that Plaintiff's Complaint (Doc. #1) is based upon the existence of an enforceable contract between the parties, whereby Buechel was to act as an independent contractor for Teknol.
Although Teknol agrees, in its memoranda, that a contract exists, it has not provided evidence, by affidavit or otherwise, that an enforceable oral contract was created between the parties. Without such evidence, the Court is limited to an evaluation of the allegations in the Counterclaim when ruling on Plaintiff's Motion to Dismiss. Conley v. Gibson, 355 U.S. at 45-46. Based on the allegations in his Counterclaim, Buechel has stated a claim for unjust enrichment. Although the existence of a contract has been alleged as well, the Court, cannot, at this juncture, find (or conclude that there is no issue of material fact) that such a contract was entered into by Teknol and Buechel. Moreover, the Court cannot conclude, as a matter of law, that Buechel's claim is governed by that contract and that relief cannot be granted on his unjust enrichment claim. The Court, therefore, concludes that dismissal of Defendant' unjust enrichment claim is inappropriate at this juncture. Accordingly, Plaintiff/Counterclaim-Defendant's Motion to Dismiss Count Seven (Unjust Enrichment) is OVERRULED.
B. Punitive Damages
Teknol seeks dismissal of Defendant's claim for punitive damages, arguing that such damages may not be awarded for breach of contract, and that Buechel has failed to allege any independent tort upon which punitive damages may be premised. Buechel counters that he has set forth tort claims, namely conversion and bad faith breach of contract, both of which support an award of punitive damages. As discussed below, Defendant's counterclaim for conversion supports an award of punitive damages, but his claim of bad faith breach of contract does not.
In general, under Ohio law, a plaintiff may not recover punitive damages for breach of contract. Demczyk v. Mutual Life Ins. Co. of N.Y., 126 F.3d 823, 828 (6th Cir. 1997). As stated by the Sixth Circuit:
Because the sole purpose of contract damages is to compensate the nonbreaching party for losses suffered as a result of a breach, "[p]unitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable." Lake Ridge Academy v. Carney, 66 Ohio St.3d 376, 613 N.E.2d 183, 187 (1993) (quoting Restatement (Second) of Contracts § 355 (1981)).
Demczyk, 126 F.3d at 828. The Sixth Circuit has further held that when the gravamen of the plaintiff's pleadings is a breach of contract, appending a claim that the breach was malicious does not convert the action into one for tort. Battista v. Lebanon Trotting Assoc., 538 F.2d 111 (6th Cir. 1976).
A tort exists only if a party breaches a duty which he owes to another independently of the contract, that is, a duty which would exist even if no contract existed. However, when the promisee's injury consists merely of the loss of his bargain, no tort claim arises because the duty of the promisor to fulfill the term of the bargain arises only from the contract. The tort liability of parties to a contract arises from the breach of some positive legal duty imposed by law because of the relationship of the parties, rather than from a mere omission to perform a contract obligation. Bowman v. Goldsmith Bros. Co., 109 N.E.2d 556, 63 Ohio Law Abst. 428 (Ct.App. 1953).
Id. at 117. The courts of Ohio consistently require an independent duty, not intertwined with a contractual relationship as the basis of a tort claim by one of the contracting parties against the other contracting party, or its employees and agents. See[,] e.g., First Federal Savings Loan Assoc. of Toledo v. Bostic and Zimpfer, No. 88AP-40 (Ohio Court of Appeals, 10th District, 1988) (1988 WL 115948).Raymac Leasing Corp. v. U.S. Brands Corp., 1991 WL 158758 at *4 (6th Cir. Aug. 14, 1991).
"[I]n Ohio[,] tort actions are generally unavailable in breach of contract cases no matter how willful or malicious the breach."Schachner v. Blue Cross and Blue Shield of Ohio, 77 F.3d 889, 897 (6th Cir. 1996) (citing Ketcham v. Miller, 104 Ohio St. 372, 136 N.E. 145, 146 (1922); The Salvation Army v. Blue Cross and Blue Shield of Northern Ohio, 92 Ohio App.3d 571, 578, 636 N.E.2d 399, 403 (Ohio Ct.App. 1993) ("It is not a tort to breach a contract, no matter how willful or malicious the breach."). "Only where a special or fiduciary relationship exists between the parties and imposes a duty of good faith will the breach of [contract] result in a tortious cause of action." Id., quoting Empire-Detroit Steel Div. Cyclops Corp. v. Pennsylvania Elec. Coil, Inc., No. CA-2903, 1992 WL 173313, at *3 (Ohio. Ct. App. June 29, 1992); Salvation Army, 636 N.E.2d at 403 ("The tort of bad faith is a breach of a duty established by a particular contractual relationship.");Motorists Mutual Ins. Co. v. Said, 590 N.E.2d 1228, 1233 (Ohio 1992) (allowing tort action for bad faith breach of contract against insurers due to implied-in-law duty of good faith and fair dealing), overruled on other grounds by Zoppo v. Homestead Ins. Co., 644 N.E.2d 397, 399-401 (Ohio 1994); Cincinnati Gas Elec. Co. v. General Elec. Co., 656 F. Supp. 49, 63 (S.D.Ohio 1986) (For breach of contract to constitute tort, "there must be a breach of a legal duty imposed by law because of the relationship of the parties.").
To determine whether an action is brought in tort or contract, a court must examine the nature of the claim rather than the form of the pleading. Salvation Army, 636 N.E.2d at 403. "If a petition states a cause of action in contract, the nature of the action is not changed by the mere fact that there is also contained therein a charge of tortious conduct." Id., quotingMeeker v. Shafranek, 112 Ohio App. 320, 323, 176 N.E.2d 10, 12 (1960). "The addition of the adverbs intentionally, willfully, and fraudulently will not change a breach of contract claim to one sounding in tort. Id.
Herein, in his Fourth Claim for Relief, Buechel alleges a claim for bad faith breach of contract. He states, in pertinent part:
Plaintiff's attempt to terminate its contractual obligations with Thomas Buechel is wrongful, willful, outrageous and malicious and is predicated upon ill will and an attempt to annoy, harass, oppress, hinder or defraud Thomas Buechel, thereby entitling him to punitive damages in an amount to be determined by the trier of fact.
(Doc. #4 ¶ 34) Construing his Counterclaim in the light most favorable to Buechel, as this Court is required to do, Defendant/Counterclaimant's Fourth Claim for Relief sounds in contract. The addition of the allegation that Teknol's actions were "wrongful, willful, outrageous and malicious and is predicated upon ill will and an attempt to annoy, harass, oppress, hinder or defraud" do not convert Defendant's breach of contract counterclaim into a claim sounding in tort. Furthermore, Buechel has not alleged that a special or fiduciary relationship exists between him and Teknol, such that a duty of good faith arose between them. Because no special relationship has been alleged, Defendant cannot assert that the alleged breach of contract by Teknol resulted in tortious conduct. Accordingly, Buechel's allegation of bad faith breach of contract cannot form a basis for his request for punitive damages.
However, Buechel's claim of conversion can provide a basis for punitive damages. Under Ohio law, common law conversion consists of the wrongful exercise of dominion over the personal property of another in denial of or inconsistent with his or her rights. Blon v. Bank One, Akron, N.A., 35 Ohio St.3d 98, 103, 519 N.E.2d 363, 369 (1988). To establish a claim of conversion, a plaintiff must demonstrate: (1) he demanded the return of the property from the possessor after the possessor exercised dominion or control over it; and (2) the possessor refused to deliver the property to its rightful owner. Wildner Contracting, 913 F. Supp. at 1043. Punitive damages may be awarded for the tort of conversion.Meacham v. Miller, 79 Ohio App.3d 35, 606 N.E.2d 996 (1992). However, in order to receive punitive damages, the plaintiff must demonstrate actual damages "distinct from the breach of contract action . . . attributable solely to the alleged tortious conduct of [the defendant]." Shimola v. Nationwide Ins. Co., 25 Ohio St.3d 84, 86 (1986).
Buechel's conversion counterclaim is set forth in his Fourth Claim for Relief (Doc. #4 ¶ 33.) It states, in pertinent part:
[I]n October of 1996, Plaintiff began intentionally and tortiously holding back and converting commissions due to Thomas Buechel on his customers' accounts and those of his network of sales people that were delinquent with Plaintiff. Thomas Buechel's attorneys demanded restoration of those converted amounts in the letter dated September 25, 1998, which is attached hereto and made a part hereof as Exhibit [B]. Thomas Buechel is entitled to recover from Plaintiff damages of not less than $3,929.87 in converted funds plus interest at the maximum allowable rate with respect to such wrongfully converted and held back commissions.
In that Count, Defendant asserts that Plaintiff has wrongfully and willfully withheld $3,929.87 in override commissions that rightfully belong to him. He further alleged, in his correspondence to Don Von Behren, dated September 25, 1998 (Doc. #4, Ex. B), that he requested the return of those wrongfully withheld funds. Accordingly, Buechel has set forth a claim for conversion, for which punitive damages may be recovered, if the requirements for such a recovery are met. Plaintiff's Motion to Dismiss Defendant's Request for Punitive Damages is OVERRULED.
For the foregoing reasons, Plaintiff's Motion to Dismiss Defendant's Seventh Claim for Relief (Unjust Enrichment) and its Motion to Dismiss Defendant's Claim for Punitive Damages in his Counterclaim, pursuant to Fed.R.Civ.P. 12(b)(6) (Doc. #7), are OVERRULED.