Opinion
Case No. 2:02-CV-00027 PGC
November 7, 2003
ORDER GRANTING AND DENYING MOTIONS TO DISMISS
This case is before the court on defendants' motion to dismiss the first, second, fourth, fifth, sixth, seventh, eighth, ninth, tenth, and eleventh causes of action of Volvo Commercial Finance, LLC's ("Volvo Finance's") second amended complaint [216-1]. Also before the court is Eric C. Jackson and Jackson Family Partnership No. 5's motion for joinder of counter-plaintiff Great Way Finance, Inc. [200-1] and Volvo Finance's motion challenging the joinder of Great Way Finance, Inc. [224-1]. Having heard argument on the matter and reviewed the pleadings, the court now GRANTS the motion for joinder of Great Way Finance, Inc., DENIES Volvo Finance's motion challenging joinder, and GRANTS in part and DENIES in part defendants' motion to dismiss.
BACKGROUND
This case involves complex litigation between multiple parties over a number of issues growing out of commercial relationships involving various Volvo dealerships and related companies in the Western United States. In brief, Volvo Finance sued Jackson and the Jackson Family Partnership over an alleged breach of a $1.3 million loan obligation after which defendants and other parties filed claims against Volvo Finance, Volvo Trucks of North America ("VTNA"), and others for alleged illegal conduct surrounding the $1.3 million loan. The cases were consolidated into this action. Great Way Finance, Inc. ("Great Way") then sought to join in defendants' claims against Volvo Finance and VTNA. In turn, Volvo Finance filed what are essentially cross-claims against some of the original defendants and other third-parties, including Great Basin Companies, Inc. and several individual defendants. These cross-claims are contained in the "Second Amended Complaint" filed on April 25, 2003 (the "complaint") which alleges multiple causes of action stemming from defendants' alleged improper handling of funds due Volvo Finance and improper management of Volvo Finance's interests under various credit and security agreements.
ANALYSIS
The court will first analyze the motions relating to Great Way Finance, Inc.'s joinder and will then turn to the motion to dismiss various causes of action in the complaint.
A. Joinder of Great Way Finance, LLC
At the court's July 22, 2003 hearing, the court took under advisement the issue of Great Way's joinder as a counterclaim plaintiff. The court provisionally granted joinder of Great Way as a counterclaim plaintiff in its April 3, 2003 order, and sees no reason why Great Way should not remain joined as a counterclaim plaintiff. Rule 20 of the Federal Rules of Civil Procedure provides for joinder of plaintiff's "if they assert any right jointly . . . or arising out of the same . . . series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action." In this case, defendants claim, among other things, that they were improperly induced into financial obligations which ultimately compromised Jackson and the Jackson Partnership's ability to pay the $1.3 million loan or otherwise financially harmed defendants. Great Way is specifically alleged to have "poured money into [a] dealership" and made costly financial decisions based on Volvo Trucks of North America's false representations. It is also alleged that plaintiff's, including Volvo Finance, tortiously interfered with Great Way's business and that Great Way was damaged by a civil conspiracy carried out by the plaintiff's.
The court finds that the counterclaims bear a logical relationship to the complaint and that Great Way's claim arises out of the same series of transactions or occurrences and involves issues of law and fact common to those raised by the other counter-claimants. At this early stage of the litigation, Great Way's joinder as a counterclaim plaintiff is proper based on the facts alleged. Because Great Way's joinder is appropriate under Rule 20, the court does not reach the issue of whether joinder is compulsory under Rule 19. As a result of the court's finding of proper joinder, Volvo Finance's motion challenging Great Way's joinder is DENIED.
B. Defendants' Motions to Dismiss
Defendants Great Basin, Inc., Jackson, Peterson, Jensen, Wooley, Sheets, Snow, and Adams' motion to dismiss the First, Second, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, and Eleventh causes of action in the complaint [216-1] was taken under advisement at the July 22, 2003 hearing. In reviewing defendants' motions to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, "[t]he court must accept as true all the factual allegations in the complaint, construe them in a light most favorable to the plaintiff, and resolve all reasonable inferences in plaintiff's favor." As a federal district court sitting in Utah, the court applies Utah substantive law and federal procedural law to the claims in this case under the Erie doctrine.
See Erie Railroad v. Tompkins, 304 U.S. 64 (1938); see also Gasperini v. Center for Humanities. Inc., 518 U.S. 415, 427 (1996).
The court GRANTS defendants' motion in part and DENIES it in part as follows:
1. Negligence and Gross Negligence (Claims 1 and 2)
Defendant argues that plaintiff's negligence and gross negligence claims are precluded by contract law. Volvo Finance responds by asserting that "[d]efendants had no contract with Volvo Finance and had no contractual obligation to handle or manage Volvo Finance's collateral." While the court accepts as true that defendants were not party to the contracts with Volvo Finance, the complaint alleges that contractual duties flowed from the Great Basin Companies' dealerships to Volvo Finance and that defendants were therefore responsible to exercise reasonable care carrying out such duties. The complaint contains numerous allegations concerning the "Floor Plan Loan Documents" and the duties flowing therefrom. According to the complaint, duties to remit sales proceeds to Volvo Finance, handle funds, act "in trust," and otherwise care for Volvo Finance's collateral and other business interests arose under a series of contractual agreements between the subsidiaries of Great Basin Companies (who are not party to this complaint) and Volvo Finance.
Memorandum in Response to Motion to Dismiss, at 7.
See e.g. Second Amended Complaint, ¶¶ 45-75 (discussing Floor Plan Loans, Floor Plan Loan Documents, Security Agreement, Floor Planned Amount, and MSO Release Process).
Under Utah law, the mere existence of a contractual relationship does not preclude negligence claims. "A party who breaches his duty of due care toward another may be found liable to the other in tort, even where the relationship giving rise to such a duty originates in a contract between the parties." However, a duty of care between plaintiff and defendant is an "essential element of a negligence action." Utah has recognized extra-contractual duties of care in contractual settings on a limited basis. In DCR, Inc. v. Peak Alarm Co., the Utah Supreme Court held that a corporation contracting to provide burglar alarm services to a consumer had an extra-contractual duty of care to warn the consumer of possible vulnerabilities in the alarm system. In that case, the court noted that Utah, like several other jurisdictions, has "recognized a duty to exercise reasonable care on the part of one who undertakes to render services" to another, whether voluntarily or by contract.
DCR, Inc. v. Peak Alarm Co., 663 P.2d 433 (Utah 1983).
Slisze v. Stanley-Bostitch, 979 P.2d 317, 320 (Utah 1999).
Id. at 436.
See id.; see also Nelson v. Salt Lake City, 919 P.2d 568, 573 (Utah 1996) (extending duty of care to governmental entity but not individual government employees).
DCR INC., 663 P.2d at 436.
The allegations of the complaint in this case provide no basis for independent extra-contractual duties of care flowing from the individual corporate employees and officers of Great Basin Companies and its subsidiaries toward Volvo Finance, especially where such corporate officers were acting within the scope of their employment. Volvo Finance insists that the individual defendants had no contractual relationship with Volvo Finance and the complaint never alleges that any of the individuals acted voluntarily to protect Volvo Finance's interests. Rather, it states, "[e]ach and every act, omission, and representation described herein, was committed, omitted, or represented within the scope and course of the individual defendants' agency for and employment by [Great Basin] Companies."
Second Amended Complaint, ¶ 27 (emphasis added).
At this stage of the litigation, the court will allow Volvo Finance's claims for negligence and gross negligence against Great Basin Companies, Inc. based on its ownership position and management role relative to the dealerships who were parties to the Floor Plan Loan Documents. However, based on the complaint's failure to establish a duty of care on the part of the individual defendants toward Volvo Finance, the causes of action for negligence and gross negligence are DISMISSED as to the individual defendants.
2. Civil Conspiracy (Claim 4)
The facts alleged in the complaint do not support a claim for civil conspiracy. Volvo Finance "concedes that, generally, a corporation cannot conspire with its agents." Nevertheless, it argues that an exception to the general rule should apply which allows individual employees and officers to "count" as co-conspirators when they have "an independent personal stake" or are "acting for their own personal purposes and not blindly executing corporate policy." Volvo Finance's claim fails for two reasons. First, Volvo Finance fails to cite any Utah legal authority supporting application of the "personal stake" exception to this case. As with the other substantive claims in this case, Utah law governs. Yet, the lone case cited in support of the "personal stake" exception comes from a Tenth Circuit Case interpreting Colorado law. There is no indication from the case law that Utah recognizes the "personal stake" exception; therefore, the general rule would apply.
Memorandum in Response to Motion to Dismiss, at 8.
Brever v. Rockwell Int'l Corp., 40 F.3d 1119, 1127 (10th Cir. 1994).
Id. (applying Colorado law to the case).
Second, however, even if Utah recognized the "personal stake" exception, it would not apply to this case because allegations which purport to demonstrate a "personal stake" on the part of the individual defendants are too vague and are actually contradicted by other specific allegations in the complaint. The complaint lumps all defendants together under the Civil Conspiracy section, making it impossible to tell which defendants had a "personal stake" and which actions were motivated by a "personal stake" as opposed to being motivated by the corporate defendant's interests. In addition, the complaint's allegation that every action by individuals in the complaint was carried out within the "scope and course of the individual defendants' agency for and employment by [Great Basin] Companies" strongly disfavors any application of a "personal stake" exception to this case.
See Second Amended Complaint, ¶¶ 123-124.
Because the only named defendants are Great Basin Companies and its own employees or agents acting within the scope of their employment, Volvo Finance's claim for civil conspiracy is DISMISSED.
3. Violation of Fiduciary Duty (Claim 5)
The complaint fails to establish any fiduciary duty between the defendants and Volvo Finance. Volvo Finance argues that "trust" language in the Security Agreements from the Floor Plan Loan Documents creates a trust, and, therefore, a trust fiduciary relationship. The court disagrees. At most, the Floor Plan Loan Documents manifest intent to create debt and mechanisms for securing such debt — i.e., security interests. Such mechanisms provide that the debtor must hold proceeds or property "in trust" for the creditor in certain situations. It is only in this context of secured transactions between creditor and debtor that "trust" language comes into play. While it is argued in Volvo Finance's briefing, the complaint itself does not sufficiently allege a declaration of trust by the defendants and it does not sufficiently allege an intent by the defendants to create a trust. Even were the court to find that any of the defendants were somehow party to the Security Agreements executed under the Floor Plan Loan Documents, under Utah law "a debtor can never, merely as such, be deemed a trustee for his creditor . . . whether he be secured or unsecured." Based on the complaint's failure to establish the requisite fiduciary relationship, Volvo Finance's claim for violation of fiduciary duty is DISMISSED.
First Security Bank of Utah v. Banberry Development Corp., 786 P.2d 1326, 1332 (Utah 1990).
4. Fraudulent Non-disclosure (Claims 6 and 10)
The parties do not dispute that, under Utah law, a claim for fraudulent non-disclosure must be supported by an underlying legal duty to disclose. "Silence in order to be actionable fraud, must relate to a matter known to the party and which it is his legal duty to communicate to the other." However, "except in broad terms the law does not attempt to define the occasions when a duty to speak arises. . . . There has been adopted, as a leading principle, the proposition that whether a duty to speak exists is determinable by reference to all the circumstances of the case and by comparing the facts not disclosed with the object and end in view by the contracting parties." Referencing all the circumstances alleged in the complaint, the court sees no basis for an affirmative duty to disclose on the part of the defendants. As mentioned previously, none of the defendants were party to any contracts with Volvo Finance, nor did any of the defendants owe fiduciary duties to Volvo Finance. In First Security Bank of Utah v. Banberry Development Corp., the Utah Supreme Court found no duty to disclose where "[plaintiff] and defendants dealt at arm's length, with no confidential relations between them." In this case, there are no allegations of any confidential relations between any of the defendants and Volvo Finance, nor are there any other "special circumstances" alleged which would justify finding defendants had a duty to disclose information to Volvo Finance. Even the dealerships, which are not party to this complaint, were not fiduciaries of Volvo Finance but were arms-length debtors. Because there is no basis for defendants' affirmative duties to disclose, the fraudulent non-disclosure claims are DISMISSED as to all defendants.
Id. at 1328 (quoting Elder v. Clawson, 384 P.2d 802, 804 (Utah 1963)).
Id.
Id. at 1334.
5. Fraudulent Concealment (Claims 7 and 11)
For purposes of this opinion, the court analyzes the fraudulent non-disclosure claims and the fraudulent concealment claims separately. Volvo Finance argues that unlike claims for fraudulent non-disclosure, claims for fraudulent concealment do not require a preexisting duty to disclose. The better view of the case law, however, including the cases cited by both parties, is that the tort of fraudulent concealment requires a preexisting duty to disclose.
In Maack v. Resource Design and Construction, Inc., the Utah Supreme Court separately analyzed claims for fraudulent concealment and fraudulent non-disclosure. The court stated that "a legal duty to communicate" is an element of fraudulent non-disclosure. In discussing the fraudulent concealment claim, the court did not explicitly use the "duty to communicate" language, but referred to fraudulent concealment as arising in a transactional setting: "one party to a transaction who by concealment or other action intentionally prevents the other from acquiring material information is subject to . . . liability to the other." In Jensen v. IHC Hospitals, Inc., the court clarified the matter and held that a duty to disclose is prerequisite to claims for fraudulent concealment or fraudulent non-disclosure: "`Concealment or non-disclosure becomes fraudulent only when there is an existing fact or condition . . . which the party charged is under a duty to disclose.'" The Jensen rule is also set forth by the Utah Court of Appeals in McDougal v. Weed, cited by the defendants.
Maack v. Resource Design and Construction, Inc., 875 P.2d 570, 578 (Utah 1994).
Id.
Id. (quoting Restatement (Second) of Torts § 550, at 118 (1977) (emphasis added) (internal quotations omitted)).
Jensen v. IHC Hospitals, Inc., 944 P.2d 327, 333 (Utah 1997) (quoting 37 Am. Jur.2d Fraud and Deceit 145 (1968)).
See 945 P.2d 175, 179 (Utah App. 1997).
Under the facts alleged in this case, none of the defendants were under a duty to disclose to Volvo Finance for purposes of fraudulent concealment. As discussed above, the defendants, while ostensibly acting pursuant to security agreements between Volvo Finance and the dealerships were not in privity of contract with Volvo Finance. Nor were defendants fiduciaries of Volvo Finance. Because there is no basis for affirmative duties to disclose on the part of the defendants, Volvo Finance's fraudulent concealment claims are DISMISSED.
6. Fraud (Claim 8)
In order to state a claim for fraud under Utah law, a plaintiff must allege "(1) that a representation was made (2) concerning a presently existing material fact (3) which was false and (4) which the representor either (a) knew to be false or (b) made recklessly, knowing that there was insufficient knowledge upon which to base such a representation, (5) for the purpose of inducing the other party to act upon it and (6) that the other party, acting reasonably and in ignorance of its falsity, (7) did in fact rely upon it (8) and was thereby induced to act (9) to that party's injury and damage." In addition, under Utah law, an officer of a corporation can personally "be held liable for fraudulent acts she personally committed or in which she participated, but she cannot be held liable for fraudulent acts that she did not know of or participate in." The court finds that the Volvo Finance's complaint properly alleges fraud against defendants Great Basin Companies, Jackson, Peterson, Woolley, and Jensen.
Armed Forces Ins. Exchange v. Harrison, 70 P.2d 35, 40 (Utah 2003).
Id. at 41.
7. Promissory Estoppel (Claim 9)
To state a claim for promissory estoppel under Utah law, "a party must show that: "(1) the promisee acted with prudence and in reasonable reliance on a promise made by the promisor; (2) the promisor knew that the promisee had relied on the promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person; (3) the promisor was aware of all material facts; and (4) the promisee relied on the promise and the reliance resulted in a loss to the promisee." The court finds that the complaint properly states a claim for promissory estoppel (detrimental reliance) against defendants Great Basin Companies, Jackson, Peterson, Woolley, and Jensen.
Johannessen v. Canyon Road Towers Owners Association, 57 P.3d 1119, 1123 (Utah App. 2002) (quotations and alterations omitted).
CONCLUSION
The court GRANTS the motion for joinder of Great Way Finance, Inc. [200-1]. Volvo Finance's motion challenging Great Way's joinder [224-1] is DENIED. Defendants' motion to dismiss [216-1] is GRANTED IN PART AND DENIED IN PART. Claims 4, 5, 6, 7, 10, and 11 are dismissed with respect to all defendants. Claims 1 and 2 are dismissed with respect to all defendants except for Great Basin Companies, Inc. Finally, claims 8 and 9 are dismissed with respect to all defendants except for Great Basin Companies, Jackson, Peterson, Woolley, and Jensen. All other claims remain as alleged.
SO ORDERED.