United States District Court, S.D. Indiana, Indianapolis Division
For PRECISION CAM, INC., KENNETH BOEHM, Plaintiffs: Joel Kirk LeBlanc, Nelson A. Nettles, LEBLANC NETTLES DAVIS, Brownsburg, IN; Matthew C. Boulton, BOULTON LAW GROUP, LLC, Brownsburg, IN.
For FOX & FOX, BRUCE FOX, Defendants: James D. Harbert, Jordan M. Feffer, PRO HAC VICE, Patrick Philip Devine, Schererville, IN.
For BRUCE FOX, FOX & FOX, Cross Claimants, Counter Claimants: James D. Harbert, Jordan M. Feffer, PRO HAC VICE, Patrick Philip Devine, Schererville, IN.
For PRECISION CAM, INC., Counter Defendant: Joel Kirk LeBlanc, Nelson A. Nettles, LEBLANC NETTLES DAVIS, Brownsburg, IN; Matthew C. Boulton, BOULTON LAW GROUP, LLC, Brownsburg, IN.
REPORT AND RECOMMENDATION ON FOX DEFENDANTS' MOTION TO DISMISS
Mark J. Dinsmore, United States Magistrate Judge.
This matter comes before the Court on the Fox Defendants' Motion to Dismiss Counts 2 and 3 of Plaintiffs' Amended Complaint. [Dkt. 54.] For the reasons that follow, the Magistrate Judge recommends that the Court GRANT Defendants' motion.
On March 21, 2014, Precision Cam, Inc. and Kenneth Boehm (" Plaintiffs") sued Bruce Fox and a California-based corporation, Fox & Fox, (" Fox Defendants"), alleging fraud and breach of fiduciary duty. [ See Dkts. 1 & 56.] Plaintiffs later filed an amended complaint against the Fox Defendants and the Association for Small, Closely-Held Business Enterprises (" ASBE"), the estate of Lawrence Cronin (" Cronin"), Cronin Insurance Services, Inc. (" CIS"), and Severance Pay Administrators, Inc. (" SPA") (collectively " Defendants"). [Dkt. 51] In their amended complaint, Plaintiffs allege breach of fiduciary duty, fraud, constructive fraud, breach of contract, gross negligence, and conversion. [ See id.]
The lawsuit grew out of a 2008 agreement in which Plaintiffs allege that Precision Cam entered into a Term Life Insurance Plan (" the Plan") to insure the life of Mr. Boehm. [ Id. ¶ 10.] The Plan called for Precision Cam to deposit $300, 000 for administration by the Fox Defendants and for eventual payment of insurance premiums. [ Id. ¶ 11.] The ASBE, however--rather than the Fox Defendants--" acted as the custodian of assets for the Plaintiffs." [ Id. ¶ 12.]
Defendant Cronin was the signatory for ASBE. [ Id. ¶ 13.] He, in turn, was also the " controlling executive of Severance Pay Administrators, Inc., " and he " was to authorize premium payments to be made to the Plan." [ Id. ¶ 15.] When the Fox Defendants " attempted to locate premium payments to be made to the Plan for Plaintiffs, " the Fox Defendants would communicate with a Cronin employee to have funds released to the Plan. [ Id. ¶ 16.] Hence, although the amended complaint is not especially clear, it seems Plaintiffs allegedly deposited $300, 000 dollars with Cronin and the ASBE, with the expectation that the Fox Defendants, over time, would ensure that this money would be released to pay premiums on the Term Life Insurance Plan.
Plaintiffs apparently received periodic reports on the balance of their deposited funds, and " [a]s last reported, the balance of the funds being administered by Fox was in excess of [$160, 000]." [ Id. ¶ 17.] On November 8, 2012, however, Precision Cam terminated the Plan and " requested that Fox return all funds then on deposit." [ Id. ¶ 18.] Instead of receiving the $160, 000 balance of unused funds, however, Plaintiffs received nothing. [ Id. ¶ 19].
This lawsuit followed, and in Counts 2 and 3 of their amended complaint, Plaintiffs contend that the unexplained loss of the $160, 000 balance constitutes fraud and/or constructive fraud. [ Id. ¶ ¶ 24-31.] The Fox Defendants moved to dismiss these counts pursuant to Fed.R.Civ.P. 12(b)(6), [Dkt. 54], and the Court now addresses the Fox Defendants' motion.
The Fox Defendants have moved to dismiss Counts 2 and 3 of Plaintiffs' amended complaint for failure to state a claim upon which relief may be granted. [Dkt. 54 at 1 (citing Fed.R.Civ.P. 12(b)(6).] " To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A plaintiff satisfies this requirement 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. The complaint must thus contain " either direct or inferential allegations respecting all the material elements necessary to sustain recovery" under the relevant legal theory. See Twombly, 550 U.S. at 562.
In addition, Counts 2 and 3 of Plaintiffs' amended complaint allege fraud and constructive fraud. [Dkt. 51 ¶ ¶ 24-31.] Plaintiffs must therefore " state with particularity the circumstances constituting [the] fraud." Fed.R.Civ.P. 9(b). The parties agree, [ see Dkt. 55 at 4, Dkt. 63 at 2], that the Seventh Circuit's decision in Windy City Metal Fabricators & Supply, Inc. v. CIT Technology Financing Serves, Inc., 536 F.3d 663 (7th Cir. 2008), supplies the proper standard for this analysis. Thus, Plaintiffs must allege " the identity of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated to the plaintiff." Id. at 668 (citations omitted). That is, they must plead with particularity the " who, what, when, where, and how" of the fraud. Id. Even under this heightened pleading standard, however, Plaintiffs need only " generally" allege " [m]alice, intent, knowledge, and other conditions of a person's mind." Fed.R.Civ.P. 9(b). The Court will address Counts 2 and 3 in turn.
A. Count 2: Fraud
Count 2 alleges " Fraud" and states that the " unexplained disappearance of the funds of Plaintiff administered, sponsored, in the custody of, or otherwise controlled by Defendants is unexplained under any other circumstances than fraud." [Dkt. 51 ¶ 25.] The elements of fraud in Indiana are " (1) a material misrepresentation of past or existing fact which (2) was untrue, (3) was made with knowledge of or in reckless ignorance of its falsity, (4) was made with the intent to deceive, (5) was rightfully relied upon by the complaining party, and (6) which proximately caused the injury or damage complained of." Kesling v. Hubler Nissan, Inc., 997 N.E.2d 327, 335 (Ind. 2013) (quoting Lawyers Title Ins. Corp. v. Pokraka, 595 N.E.2d 244, 249 (Ind. 1992)). To survive a motion to dismiss, Plaintiffs' complaint must thus include " either direct or inferential allegations respecting all" six of these elements. See Twombly, 550 U.S. at 562.
1. Material Misrepresentation
The first and second elements of fraud are 1) " a material misrepresentation of past or existing fact" that 2) " was untrue." Kesling, 997 N.E.2d at 335. Under Rule 9, Plaintiffs must include " the identity of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation ...