Hunt Construction Group v. Cobb Mechanical Contractors, Inc. et al

MOTION to Dismiss Count VII

W.D. Tex.February 19, 2018

LIBERTY’S MOTION TO DISMISS COUNT VII OF HUNT’S AMENDED COMPLAINT Page 1 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TEXAS AUSTIN DIVISION HUNT CONSTRUCTION GROUP, INC., § an Indiana corporation, § § Plaintiff, § § v. § CIVIL ACTION NO. 1:CV-17-215 § COBB MECHANICAL CONTRACTORS, § INC., § a Colorado corporation § § Defendant § § and § § LIBERTY MUTUAL INSURANCE § COMPANY, § a Massachusetts corporation § § Defendant / Counter-Claimant § LIBERTY’S MOTION TO DISMISS COUNT VII OF HUNT’S AMENDED COMPLAINT, OR, ALTERNATIVELY FOR MORE DEFINITE STATEMENT Liberty Mutual Insurance Company (the “Surety”) files this its motion to dismiss Count VII of the amended complaint of Hunt Construction Group, Inc. (“Hunt”), Dkt. 66. Alternatively, the Surety requests a more definite statement. I. SUMMARY 1. Four months before discovery closes, Hunt seeks to convert this contractual dispute into a fraud case. Hunt fails to plead with particularity and plausibility. At a minimum, Hunt should be required to replead its fraud claim to meet the heightened standards of Twombly and Rule 9(b). 2. In reality, Hunt’s fraud claim should be dismissed. This is a breach of contract and declaratory judgment lawsuit related to a construction project that, when finished, will be the 2nd Case 1:17-cv-00215-LY Document 72 Filed 02/19/18 Page 1 of 8 LIBERTY’S MOTION TO DISMISS COUNT VII OF HUNT’S AMENDED COMPLAINT Page 2 largest skyscraper in Austin, and the largest Fairmont hotel in the world. This case involves sophisticated parties who reduced their agreements to writing; disputes about scheduling, coordination, and impacts; disputes about contractual performance; and disputes about whether the contractor violated the surety’s and the subcontractor’s rights under the bond and the contract. What this case is not is a fraud case. 3. Before the Court - over three years after the Cobb Subcontract was signed and the separate surety contract was signed, and nearly one year after the lawsuit was filed - is a 6 paragraph fraud count of a very sophisticated contractor who is attempting to transmute this contract dispute into a vague, poorly defined fraud claim. It appears (but is unclear) that Hunt complains it was defrauded regarding generic contractual provisions in the subcontract related to adequate personnel and sufficient manpower. 4. Hunt’s fraud claim fails for three independent reasons: a. It does not satisfy the elements of fraud and does not meet the heightened pleading standards; b. Hunt has not alleged any damages or conduct that would give rise to liability separate from its breach of contract claim; c. It is undisputed that Cobb partially performed - and is continuing performance of - the contract. This negates any “no intention of performance” allegations of Hunt. The amended complaint would improperly fracture this simple contractual dispute into a fraud claim, would dramatically drive up costs, waste time, and create unwarranted complexity. Simply put, it would be contrary to the “just, speedy, and inexpensive determination” of this contractual lawsuit. FED.R.CIV.P. 1. Case 1:17-cv-00215-LY Document 72 Filed 02/19/18 Page 2 of 8 LIBERTY’S MOTION TO DISMISS COUNT VII OF HUNT’S AMENDED COMPLAINT Page 3 II. ARGUMENTS & AUTHORITIES 5. Discovery closes in four months. The fraud claim of Hunt, which points solely to contractual provisions and alleges identical damages to its breach of contract claim, should be dismissed because of the economic loss rule; because Hunt admits Cobb partially performed; and because Hunt fails to come close to meeting the elements of fraud or the heightened pleading standard of Rule 9(b). Dismissal of the fraud claim is therefore critical to keeping this case what it is: a case about a construction contract, not a case about fraud. See United States for the Use and Benefit of EJ Smith Construction Co., LLC v. Travelers Cas. and Sur. Co., et al., 2016 WL 1030154, **12-14 (W.D. Tex. 2016) (dismissing general contractor’s “fraud” claim that was insufficient to meet Twombly and elements under Texas law). A. The fraud claim fails 9(b) and does not meet the elements under Texas law. 6. Rule 12(b)(6) allows dismissal if a plaintiff fails “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). To withstand a Rule 12(b)(6) motion, a complaint must contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. 7. “Fraud claims must also comply with the supplemental pleading requirements of Rule 9(b), demanding that a party must state with particularity the circumstances constituting fraud or mistake.” Lightsource Analytics, LLC v. Great Stuff, Inc., 2014 WL 798069, *1 (W.D. Tex. 2014) (Austin, M.J.) (internal citations and quotations omitted). “Rule 9(b) should be interpreted strictly, and plaintiff must specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent.” Case 1:17-cv-00215-LY Document 72 Filed 02/19/18 Page 3 of 8 LIBERTY’S MOTION TO DISMISS COUNT VII OF HUNT’S AMENDED COMPLAINT Page 4 Id. (internal citations and quotations omitted). The pithy fraud claim of Hunt fails to meet this demanding standard. 8. Under Texas law, the elements of fraud are: (1) a material misrepresentation was made; (2) the representation was false; (3) when the representation was made, the speaker knew it was false or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the speaker made the representation with the intent that the other party should act upon it; (5) the party acted in reliance on the representation; and (6) the party thereby suffered injury. Italian Cowboy Partners v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 337 (Tex. 2011). Hunt “must specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent.” Southlake Sees. Corp. v. INSpire Ins. Solutions, 365 F.3d 353, 362 (5th Cir. 2004). “The mere failure to perform a contract is not evidence of fraud; instead, fraud requires that the party made representations with the intent to deceive and with no intention of performing as represented.” U.S. Enercorp, Ltd. v. SDC Montana Bakken Exploration, LLC, 2015 WL 1310359, *15 (W.D. Tex. 2015) (disposing of “fraud” claim). And “projections of future events…are not actionable as fraud.” America’s Favorite Chicken Co. v. Cajun Enterprises, 130 F.3d 180, 186 (5th Cir. 1997). 9. Hunt attempts to bring a “fraud” claim that is duplicative of its “breach of contract” claim. “A fraud claim is duplicative of a breach of contract claim if the defendant’s conduct would give rise to liability only because it breaches the parties’ agreement ... We look to the substance of the cause of action rather than the manner in which it was pleaded.” Gay v. City of Wichita Falls, 457 S.W.3d 499, 509 (Tex. App. - El Paso 2014, no pet.). Hunt alleges the same damages for “fraud” as it does for “breach of contract”: “damages … in no event less than $36 million.” Compare Dkt. 66, Prayer for Relief, ¶ (b) with ¶ (g). The fraud claim should therefore be dismissed because “the proposed amended complaint seeks the same damages as the breach of contract Case 1:17-cv-00215-LY Document 72 Filed 02/19/18 Page 4 of 8 LIBERTY’S MOTION TO DISMISS COUNT VII OF HUNT’S AMENDED COMPLAINT Page 5 claim.” Mosaic Caribe v. AllSettled Group, 117 A.D.3d 421, 423 (N.Y. App. 2014) (affirming dismissal of fraud claim that was duplicative of breach of contract claim). B. The economic loss rule and indivisibility of the contract bar the fraud claim. 10. When “the injury is only the economic loss to the subject of a contract itself, the action sounds in contract alone.” Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). Tort damages are not recoverable if the defendant’s conduct “would give rise to liability only because it breaches the parties’ agreements.” Sw. Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991). 11. The court must determine whether Hunt’s fraud claim would give rise to liability independent of the fact that a contract exists between the parties. Myers v. Bank of Am., N.A., 2012 WL 1107687, *3 (E.D. Tex. 2012) (dismissing tort claims that flowed solely from the contract and “would not exist but for the contractual relationship between the parties.”). The subcontract has a merger clause: “All previous proposals, promises and understandings relating to the subject matter of this Subcontract, whether written or oral, are null and void and have been replaced by the terms and conditions contained in this Subcontract.” Subcontract, ¶ 35.6. Hunt’s fraud claims flow solely from the contracts, and they would not exist but for the contractual relationship between the parties. Indeed, Hunt merely points to two contractual provisions to support its fraud claim. Dkt. 66, ¶¶ 94-95. 12. In its fraud claim, Hunt seeks rescission of the Subcontract. Id. at ¶ 98. Yet Hunt continues to seek the benefits and bargains of part of the single subcontract: Cobb’s ongoing work on the Tower portion of the project. Id. at 58-60. This runs afoul of the rule that an indivisible contract (here there is a single subcontract) cannot be partially rescinded. Neill v. Neill, 386 S.W.2d 642, 648 (Tex. Civ. App. Austin 1965, writ dismissed). A party to a contract cannot rescind the obligation in part, keeping its benefits and avoiding its disadvantages, unless a portion of the Case 1:17-cv-00215-LY Document 72 Filed 02/19/18 Page 5 of 8 LIBERTY’S MOTION TO DISMISS COUNT VII OF HUNT’S AMENDED COMPLAINT Page 6 instrument is entirely severable from the remainder of the agreement, so as, in effect, to constitute two independent contracts. Ashby v. Gibbon, 69 S.W.2d 445, 447-48 (Tex. Civ. App. Amarillo 1934, no pet.). Hunt has set forth no facts to support its claim for rescission. C. Cobb’s undisputed partial performance, and Hunt’s ongoing performance, negates Hunt’s fraud claim. 13. Hunt admits that “Cobb began its work under the Subcontract in the spring of 2015…” Dkt. 66, ¶ 21. Hunt has paid Cobb millions of dollars for its performance, and has allowed Cobb to continue working on the project during the pendency of this lawsuit (Id. at ¶¶ 58-60, entitled “Cobb’s continuing work on the Tower”). Yet Hunt’s new fraud claim alleges that Cobb “fraudulently induced Hunt to enter into the Subcontract…” Id. at ¶ 97. This requires Hunt to prove that Cobb had “no intention of performing” the subcontract. Formosa Plastics Corp. USA v. Presidio Engineers & Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998). 14. Under Texas law, partial performance is sufficient to negate such a fraud claim. Bank One, Tex. N.A. v. Stewart, 967 S.W.2d 419, 445-46 (Tex. App. - Houston [14th Dist.] 1998, pet. denied); Allamon v. Acuity Specialty Products, Inc., 877 F.Supp.2d 498, 525 (E.D. Tex. 2012) (“partial performance negates [plaintiff’s] fraud allegation…”); Brothers v. Print, Inc., 2007 WL 3331974, *6 (N.D. Tex. 2007) (“Under Texas law, that partial performance negates any argument that a party did not intend to perform.”)(citing Reyna v. First Nat’l Bank, 55 S.W.3d 58, 68 (Tex. App. - Corpus Christi 2001). 15. While Hunt may point that other Texas cases hold that partial performance does not always refute a fraud claim under Texas law, e.g. Lightsource Analytics, LLC, 2014 WL 798069 at **2-3, these cases hold that the plaintiff must produce other evidence indicating an intent not to fully perform. Id. at *3. In Lightsource, this Court discussed Shandong Yinguang Chemical Indus. Joint Stock Co., Ltd. v. Potter, 607 F.3d 1029 (5th Cir. 2010). In Shandong, the Fifth Circuit held Case 1:17-cv-00215-LY Document 72 Filed 02/19/18 Page 6 of 8 LIBERTY’S MOTION TO DISMISS COUNT VII OF HUNT’S AMENDED COMPLAINT Page 7 that the defendant’s partial performance negated the fraud claim as a matter of law. This Court noted that Shandong also highlighted other evidence countering the fraudulent intent to perform claim, such as “a significant amount of time passing between the alleged false representation and the company’s ultimate failure to pay, and the fact that the company had been sanctioned by the State Department which prevented the company from making payments under the Agreement.” Lightsource, 2014 WL 798069 at *3. Here, a significant time has passed since the alleged false representation (allegedly made in the subcontract signed July 20, 2015), and Cobb has been prevented from performing on part of the project because of Hunt’s improper “partial termination,” which occurred on November 18, 2016. Thus, it is Hunt who is preventing Cobb from performing. Hunt is also permitting “continuing work” by Cobb on the Tower portion of the contract. Dkt. 66, ¶ 58 (“Since November 2016, Cobb’s ongoing contractual responsibilities have been restricted to work on the Tower.”). If the fraud claim could not survive in Shandong, then, a fortiori, the undisputed facts in the case at bar preclude Hunt’s fraud claim. REQUEST FOR RELIEF The Surety respectfully requests that the Court dismiss Count VII of Hunt’s Amended Complaint, Dkt. 66. Alternatively, the Surety requests that Hunt be required to plead with more specificity and particularity, as required by Rule 9(b) and Twombly. Respectfully submitted, LANGLEY LLP By: /s/ Keith A. Langley Keith A. Langley - Attorney in Charge Texas State Bar No. 11919500 1301 Solana Blvd., Bldg. 1, Suite 1545 Westlake, Texas 76262 214-722-7162 214-722-7161 Facsimile klangley@l-llp.com Case 1:17-cv-00215-LY Document 72 Filed 02/19/18 Page 7 of 8 LIBERTY’S MOTION TO DISMISS COUNT VII OF HUNT’S AMENDED COMPLAINT Page 8 Trevor “Max” Langley Texas State Bar No. 24102060 1301 Solana Blvd., Bldg. 1, Suite 1545 Westlake, Texas 76262 214-722-7185 214-722-7161 Facsimile mlangley@l-llp.com COUNSEL FOR LIBERTY MUTUAL INSURANCE COMPANY CERTIFICATE OF SERVICE I certify that a true and correct copy of the foregoing is to be delivered to the following parties in accordance with the Federal Rules of Civil Procedure on the 19th day of February, 2018. Casey Low PILLSBURY WINTHROP SHAW PITTMAN LLP 401 Congress Ave., Suite 1700 Austin, TX 78701 (512) 580-9601 facsimile Casey.low@pillsburylaw.com -AND- Steven G.M. Stein C. Steven Tomashefsky STEIN RAY LLP 222 West Adams St., Suite 1800 Chicago, IL 60606 (312) 341-3701 facsimile sstein@steinraylaw.com stomashefsky@steinraylaw.com Attorneys for Plaintiff, Hunt Construction Group, Inc. Michael L. Burnett GREENBERG TRAURIG LLC 1000 Louisiana St., Suite 1700 Houston, TX 77002 (713) 374-3505 facsimile burnettm@gtlaw.com Attorneys for Defendant, Cobb Mechanical Contractors, Inc. /s/ Keith A. Langley Keith A. Langley Case 1:17-cv-00215-LY Document 72 Filed 02/19/18 Page 8 of 8