Malone v. Cemetary St. Dev. CV-94-339-B 02/17/95 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW HAMPSHIRE

Steven E. Malone and John Cady

v. No. 94-339-B

Cemetary Street Development, Inc. and Raymond W. Godbout

O R D E R

The parties' dispute arose from a joint real estate

development venture that collapsed when the defendants dismissed

plaintiff Cady from the group. Plaintiffs sued alleging breach

of contract, intentional and negligent misrepresentation, and

guantum meruit. They also seek enhanced compensatory damages.

Defendants counterclaimed alleging breach of contract. Pending

before me are: (1) the plaintiffs' petition to attach real

estate; (2) defendants' motion to dismiss the breach of contract

and negligent misrepresentation counts; (3) defendants' motion

for summary judgment on plaintiffs' guantum meruit claim against

defendant Godbout and their claim for enhanced compensatory

damages; and (3) defendants' claim for a more particular

statement of plaintiffs' fraud allegations. I address each

pleading separately beginning with the defendants' motions. I. DEFENDANTS' MOTION TO DISMISS

When considering a motion to dismiss under Federal Rule of

Civil Procedure 12(b)(6), this court must accept all material

allegations as true and may grant dismissal only if no set of

facts entitles the plaintiffs to relief. Vartanian v. Monsanto

C o .,

(1st Cir. 1994) . I review the copy of the

parties' agreement, that is attached as an exhibit to the

complaint, as part of the complaint. Fed. R. Civ. P. 10(c); In

re Lane,

(1st Cir. 1991). I draw reasonable

inferences from the pleadings in the light most favorable to the

plaintiffs. Berniger v. Meadow Green-Wildcat Corp.,

(1st Cir. 1991).

Defendants move to dismiss plaintiffs' breach of contract

claim asserting that no enforceable contract existed to support

plaintiffs' claim. Defendants also contend that plaintiffs'

negligent misrepresentation claim fails to state a cause of

action. I begin with the breach of contract claim.

A. Breach of Contract

The plaintiffs' complaint alleges that defendant Godbout,

who was the president and controlling shareholder of Cemetary

Street Development, Inc. ("CSD"), met with the plaintiffs, Steven

Malone and John Cady, beginning in May 1993 for advice and

2 assistance in developing land owned by CSD. The parties signed a

memorandum of understanding on September 8, 1993, which is the

agreement appended to the complaint. The agreement states that

the parties intend to form a joint venture partnership to develop

the land and it provides the structure for their joint venture

partnership agreement. It also says "[t]he details of this

agreement will be more fully described in a Formal Partnership

Agreement." As alleged, the plaintiffs worked toward developing

the property until January 1994 when the defendants terminated

their business relationship with Cady. No formal partnership

agreement was executed. The plaintiffs allege that the

defendants breached the memorandum of understanding by

terminating the parties' business relationship without paying the

plaintiffs for their services.

In order to state a breach of contract claim, plaintiffs

must allege that they had an enforceable contract with the

defendants. Moreover, whether an alleged contract is legally

sufficient is a guestion of law for the court to decide. See

Provencal v. Vermont Mut. Ins. Co.,

(1990).

Here, plaintiffs base their contention that they had an

enforceable contract with CSD solely on the single-page

"Memorandum of Understanding" attached to the complaint. They do

3 not contend that the parties intended additional terms to be

inferred from their course of dealing, from the express terms in

the document, or from other agreements. Thus, in evaluating

defendants' motion to dismiss the breach of contract count, I

must determine whether this document, on its face, constitutes an

enforceable contract.

It is axiomatic that a contract is not enforceable unless it

is supported by adeguate consideration. "Consideration is

essential to all contracts, and may consist either in a benefit

to the promisor or a detriment to the promisee." Chasan v.

Village District of Eastman,

(1986) (citations

omitted). Moreover, consideration must be mutual, that is "a

legal detriment to the promisee (with a corresponding legal

benefit to the promisor), and . . . a bargained-for exchange."

Appeal of Lorden,

(1991).

The agreement at issue in the present case does not

obligate the plaintiffs to do anything. Nor does it confer any

benefit on the defendants. Thus, the memorandum of understanding

is not an enforceable contract because it lacks the mutuality of

obligation necessary for adeguate consideration. See, e.g.,

Albee v. Wolfeboro Railroad Co.,

(1985).

Accordingly, I grant defendants' motion to dismiss the breach of

4 contract count.

B. Negligent Misrepresentation

Plaintiffs allege that defendants "represented to Plaintiffs

that the Plaintiffs would be reimbursed for their services in

accordance with the terms of the contract." The complaint

continues that plaintiffs relied on the representations and

performed services for the defendants while the defendants "knew,

or should have known, that their representations were false."

Finally, the claim concludes that "Defendants have breached their

duties by terminating the contract between the parties" and that

the plaintiffs have suffered damages as a result.

The elements of negligent misrepresentation are "the

defendant's negligent misrepresentation of a material fact and

the plaintiff's justifiable reliance on that misrepresentation."

Hydraform Prods. Corp. v. American Steel & Aluminum Corp., 12

(1985) (citing Inqaharro v. Blanchette,

(1982)). A representation is negligently made "when the

representor fails to use reasonable care in ascertaining the

facts." Island Shores Estates Condominium Ass'n v. Concord,

(1992). Also, a relationship must exist between

the representor and the person relying on the representation that

creates a duty to provide accurate and truthful information.

5

. Ordinarily, a promise of future action is not a

statement of fact and will only give rise to a cause of action

for negligent misrepresentation if the promise implies "a

statement of material fact about the promisor's intention and

capacity to honor the promise." Hydraform, 127 N.H. at 200; see

also Munson v. Raudonis,

(1978) . Thus, a claim

for negligent misrepresentation by a promise of future

performance will lie only if the promisor negligently represents

either his intent to perform or his capacity to perform as

promised.

Plaintiffs base their negligent misrepresentation claim on

Godbout's alleged misrepresentation concerning CSD's intention

rather than its capacity. Intentions are conscious thoughts.

Except perhaps in extraordinary circumstances not present here, a

person cannot unintentionally but negligently misrepresent his

own intentions. Thus, any misrepresentation claim based upon a

speaker's misrepresentations of his own intentions must

ordinarily be premised on an intentional misrepresentation

theory.

In this case, plaintiffs charge that Godbout misrepresented

CSD's intentions. Although in some instances a person may

negligently misrepresent a third party's intentions, it is

6 undisputed here that Godbout is the president and controlling

shareholder of CSD. Under these circumstances, CSD's intentions

are his intentions, and Godbout could not unintentionally but

negligently misrepresent CSD's intention to compensate the

plaintiffs for their services.1 Accordingly, plaintiffs'

negligent misrepresentation claim is dismissed.

II. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

Defendants move for summary judgment with respect to the

plaintiffs' claim for enhanced compensatory damages and on

plaintiffs' guantum meruit claim against Godbout. Summary

judgment is only appropriate "if the pleadings, depositions,

answers to interrogatories, and admissions on file, together with

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to judgment

as a matter of law." Fed. R. Civ. P. 56(c). A "genuine" issue

is one "that properly can be resolved only by a finder of fact

because [it] may reasonably be resolved in favor of either

party." Anderson v. Liberty Lobby, Inc.,

, 250

1 Plaintiffs' intentional misrepresentation claim is stated in count two and has not been challenged by the defendants.

7 (1986). A "material issue" is one that "affect[s] the outcome of

the suit . . .

. The burden is on the moving party

to aver the lack of a genuine, material factual issue, Finn v.

Consolidated Rail Corp.,

(1st Cir. 1986), and the

court must view the record in the light most favorable to the

non-moving party, according the nonmovant all beneficial

inferences discernable from the evidence. Oliver v. Digital

Equip. Corp.,

(1st Cir. 1988) . If a motion for

summary judgment is properly supported, the nonmovant may not

rely on the pleadings to avoid summary judgment but must set

forth specific facts to show a genuine issue for trial. Lucia

v. Prospect St. High Income Portfolio,

(1st Cir.

1994). I begin with the claim for enhanced compensatory damages.

A. Enhanced Compensatory Damages

New Hampshire allows enhanced compensatory damages only in

limited circumstances: "when the act involved is wanton,

malicious, or oppressive." Vratsenes v. N. H. Auto.,

(1972); see also Munson,

. Also, enhanced

damages have been "reserved for intentional torts committed under

exceptionally unsavory circumstances." DCPB, Inc. v. Lebanon,

957 F .2d 913, 915 (1st Cir. 1992).

8 Defendants challenge plaintiffs' claim for enhanced damages

with defendant Godbout's affidavit stating that he acted in good

faith and never bore ill will, malice or hatred toward

plaintiffs. Plaintiffs respond that the circumstances of the

business arrangement and defendant's actions warrant enhanced

damages. In support of their claim, plaintiffs attach the

affidavit of plaintiff Malone who recounts the dealings between

the plaintiffs and defendants, that they met through an

intermediary, that plaintiffs provided advice and assistance in

developing the property, that they agreed to specific terms for

their limited partnership agreement, and that defendants

terminated their relationship before plaintiffs received any

payment. Malone concludes:

Based on the facts set forth above, it is my view that the Defendants got John Cady and me to perform all of the services outlined above on their behalf and, after the work was performed and the Defendants benefited therefrom, the Defendants are now seeking to back out of the contract. To me this is malice, ill will, or hatred towards the Plaintiffs.

Beyond the failure of the business arrangement, plaintiffs

offer no specific facts of egregious conduct by defendants to

show wanton, malicious or oppressive actions against plaintiffs.

C f ., e.g., Wilko of Nashua, Inc. v. TAP Realty, Inc.,

(1977) (holding that defendant's alteration of an assignment of a lease, recording the fraudulent document, and

refusal to withdraw the fraudulent assignment constituted

aggravating circumstances supporting enhanced damages); Morris v.

Ciborowski,

(1973) (affirming enhanced damages

where defendant tried unsuccessfully to buy land and then

intentionally "cleared part of the parcel he had continually

tried to buy, destroying or removing shrubs and trees, boundary

lines, fences, fouling a brook, and interfering with [the

plaintiff's] other incidents of ownership"). Nor have they

attempted to support their theory in count two of the complaint

that defendants intentionally misrepresented their intentions to

compensate plaintiffs for their services beyond Malone's opinion

in his affidavit. Thus, plaintiffs ask this court to infer

malice from the defendants' termination of their business

arrangement before plaintiffs received their expected

compensation or based on Malone's opinion of the defendants'

intentions.

Under the summary judgment standard this court must draw

reasonable inferences in favor of the nonmovant, the plaintiffs

here. However, to be reasonable, "a suggested inference must

ascend to what common sense and human experience indicates is an

acceptable level of probability." National Amusements, Inc. v.

10 Dedham, No. 91-1176, slip op. at 27 (1st Cir. January 4, 1995).

This court is not obliged "to draw unreasonably speculative

inferences." Mesnick v. General Electric Co.,

(1st Cir. 1991), cert, denied, 112 S. C t . 2965 (1992). Although

guestions of state of mind and intent are generally left for the

jury, "summary judgment may be appropriate if the nonmoving party

rests merely upon conclusory allegations, improbable inferences,

and unsupported speculation." Goldman v. First Na t '1 Bank, 985

F .2d 1113, 1116 (1st Cir. 1993).

The plaintiffs have not shown "exceptionally unsavory

circumstances" that would allow an award of enhanced damages.

See DCPB, Inc., 957 F.2d at 915. I find no logical connection

between the failure of the parties' business relationship, as

described by Malone, and his conclusion that the defendants bore

him malice, hatred, and ill will. Moreover, plaintiffs have not

attempted to respond to the motion by providing evidentiary

support for their intentional misrepresentation claim. The mere

fact that the plaintiffs did not receive the compensation they

expected for their services does not rise to the level of malice

by the defendants. The plaintiffs offer nothing more than the

unhappy circumstances of a failed business relationship.

When the nonmovant bears the burden of proof at trial on an

11 issue and, in opposing summary judgment, fails to make a showing

sufficient to sustain an element of the claim, "the failure of

proof as to an essential element necessarily renders all other

facts immaterial, and the moving party is entitled to judgment as

a matter of law." Smith v. Stratus Computer, Inc.,

(1st Cir. 1994). Because plaintiffs have failed to counter

defendant's affidavit that he bore no malice, ill will or hatred

toward the plaintiffs, they have failed to carry their burden of

proof on enhanced damages. Summary judgment is granted in favor

of the defendants on count four and enhanced damages are not

available in this case.

B. Godbout's Personal Liability for Quantum Meruit Claim

Under the eguitable doctrine of unjust enrichment, "one

shall not be allowed to profit or enrich himself at the expense

of another contrary to eguity." Pella Windows & Doors v. Faraci,

(1990) guoting (Cohen v. Frank Developers,

Inc.,

(1978)). The remedy provided by guantum

meruit allows a claimant to recover the reasonable value of his

services despite the absence of a contract or even if he is in

material breach of contract. See Adkin Plumbing & Heating Supply

Co. v. Harwell,

(1992); Burgess v. Queen,

(1983); R. J. Berke & Co. v. J. P. Griffin,

12 Inc.,

(1976).

Defendants move for summary judgment on behalf of defendant

Godbout on the grounds that only CSD allegedly benefitted from

plaintiffs' services, not Godbout individually. They argue that

an individual shareholder cannot be held liable for the debts of

the corporation. Plaintiffs first respond that Godbout is liable

in guantum meruit based upon their allegations that he

intentionally and negligently misrepresented CSD's intention to

perform their agreement to form a limited partnership. Next they

argue that Godbout should be held liable for CSD's obligations to

prevent fraud and injustice.

I find no merit in plaintiffs' argument that Godbout's

alleged misrepresentations render him liable for corporate

obligations in guantum meruit. The complaint alleges benefit

only to CSD which owned the property and plaintiffs have not

offered proof that Godbout individually benefitted from the

services they allegedly performed. In order to hold Godbout

personally liable for CSD's alleged corporate liability, the

plaintiffs must offer properly supported facts showing

circumstances that would reguire the eguitable remedy of

"piercing the corporate veil." See Terren v. Butler,

(1991). This they have not done. Mere invocation of

13 a legal theory will not stave off summary judgment when the

moving party has met its burden by showing the absence of

disputed facts on the issue. I grant summary judgment in favor

of Godbout on plaintiffs' claim for guantum meruit.

III. DEFENDANTS' MOTION FOR A MORE PARTICULAR STATEMENT

Defendants ask that the plaintiffs be ordered to state the

circumstances that they allege constitute fraud with greater

particularity pursuant to Federal Rule of Civil Procedure 9 (b).

They contend that two paragraphs, thirty and thirty-one, are

ambiguous as to whether the alleged misrepresentations are only

in the agreement or whether the plaintiffs allege other

misrepresentations in addition to the agreement. Plaintiffs

respond that the complaint sufficiently notifies the defendants

of the claim against them.

In a diversity case, a challenge to the particularity of

pleading fraud raises a procedural guestion to be resolved under

the Federal Rules of Civil Procedure rather than an issue of the

substantive elements of fraud governed by state law. Hayduk v.

Lanna,

(1st Cir. 1985) . Rule 92 "reguires

2 Federal Rule of Civil Procedure 9(b) provides: In all averments of fraud or mistake, the

14 specification of the time, place, and content of an alleged false

representation, but not the circumstances or evidence from which

fraudulent intent could be inferred." McGintv v. Beranger

Volkswagen, Inc.,

(1st Cir. 1980). The

particularity requirement of Rule 9 is intended "(1) to place the

defendants on notice and enable them to prepare meaningful

responses; (2) to preclude the use of a groundless fraud claim as

a pretext to discovering a wrong or as a 'strike suit'; and (3)

to safeguard defendants from frivolous charges which might damage

their reputations." New England Data Services, Inc. v. Becher,

(1st Cir. 1987) . The rule prevents a plaintiff

from alleging fraud first and then using discovery to search for

circumstances to support the claim. Hayduk,

. But

see New England Data Services,

(holding that in

mail fraud cases the plaintiff must be allowed some discovery in

order to plead particular circumstances that are peculiarly

within the control of the defendant).

In their intentional misrepresentation claim, the plaintiffs

allege in paragraph D that "[t]he defendants, through the actions

circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge and other condition of mind of a person may be averred generally.

15 of Defendant Godbout, misrepresented to the Plaintiffs that CSD

would pay the Plaintiffs for their services under the terms set

forth in the contract." This allegation, based on the contract,

sets forth the parties involved, the place and content of the

alleged misrepresentation, and, in context, sets the time between

September 1993 and January 1994. The plaintiffs' next paragraph

says: "The Defendants represented to the Plaintiffs that CSD

would pay the Plaintiffs for their services with the intention to

induce the Plaintiffs' reliance on said representations and to

perform said services." This paragraph is much less explicit as

to date and the source of the representation. The defendants'

concern is whether plaintiffs are alleging misrepresentation

based solely on the parties' agreement or whether they are

alleging other promises to pay for plaintiffs' services. The

defendants' apprehension is well conceived as the second

paragraph, based on its terms and context, seems to allege

misrepresentations other than those alleged in the previous

paragraph but without the necessary detail.

Plaintiffs must amend their complaint within twenty days of

the date of this order to describe in detail the time, place, and

manner of the alleged misrepresentations referred to in paragraph

thirty-one of the original complaint. If plaintiffs do not amend

16 their complaint within the time provided, paragraph thirty-one

will be stricken from the complaint.

IV. PLAINTIFFS' PETITION FOR AN ATTACHMENT

The plaintiffs petition for permission to place an

attachment on the real estate of the defendants, Godbout and CSD,

for the amount of $927,840 plus costs, attorneys' fees, and

enhanced compensatory damages. The availability of a prejudgment

attachment is determined in federal court by applying the

applicable law of the forum state. Fed. R. Civ. P. 64; Diane

Holly Corp. v. Bruno & Stillman Yacht Co.,

(D.N.H. 1983). In New Hampshire, prejudgment attachments may be

granted only after notice to the defendant, and upon defendant's

objection, following a hearing. N.H. Rev. Stat. Ann. 511-A:2 &

511-A:3 (1983). At the hearing, "the burden shall be upon the

plaintiff to show that there is a reasonable likelihood that the

plaintiff will recover judgment including interest and costs on

any amount egual to or greater than the amount of the

attachment." N.H. Rev. Stat. Ann. 511-A:3.

At this juncture, where several of plaintiffs' claims have

been eliminated, the current petition to attach no longer

addresses the merits of the plaintiffs' case. In fairness to

17 both sides, I dismiss the present petition without prejudice to

allow the plaintiffs to draft a new petition, if they so desire,

in light of their surviving claims.

V. CONCLUSION

For the foregoing reasons defendants motion to dismiss

(document number 5) is granted so that count one (breach of

contract) and count three (negligent misrepresentation) are

dismissed. Defendants' motion for summary judgment (document

number 6) is granted so that count four (enhanced damages) and

plaintiffs' claim in guantum meruit against defendant Godbout

individually in count five (guantum meruit) are dismissed.

Defendants' motion for a more particular statement of fraud

(document number 7) is granted in part; plaintiffs shall have

twenty days to amend their complaint to allege additional claims

of fraud with particularity. Plaintiffs' petition to attach

(document number 2) is dismissed without prejudice.

SO ORDERED.

Paul Barbadoro United States District Judge

February 17, 1995

18 cc: Jonathan Flagg, Esg. Frank Spinella, Esg.

19