471 F.3d 410 (2nd Cir. 2006), 05-4065, Wall v. CSX Transp., Inc.

Docket Nº:05-4065-CV.
Citation:471 F.3d 410
Party Name:Douglas E. WALL, Plaintiff-Appellant, v. CSX TRANSPORTATION, INC. and Consolidated Rail Corporation, Defendants-Appellees.
Case Date:December 14, 2006
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

Page 410

471 F.3d 410 (2nd Cir. 2006)

Douglas E. WALL, Plaintiff-Appellant,


CSX TRANSPORTATION, INC. and Consolidated Rail Corporation, Defendants-Appellees.

No. 05-4065-CV.

United States Court of Appeals, Second Circuit.

December 14, 2006

Argued March 23, 2006.

Appeal from an order of the United States District Court for the Southern District of New York (Daniels, J.) with judgment entered on June 30, 2005, granting defendants' motion to dismiss and denying plaintiff leave to file a second amended complaint.

Page 411

[Copyrighted Material Omitted]

Page 412

[Copyrighted Material Omitted]

Page 413

Andrew C. Kelly, Jordan & Kelly LLC, Greenwich, NY, for Plaintiff-Appellant.

Ronald M. Johnson, Alan D. Cohn, Akin Gump Strauss Hauer & Feld, LLP, Washington, DC, for Defendants-Appellees.

Before: STRAUB and SACK, Circuit Judges, and TRAGER, District Judge.[*]

TRAGER, District Judge:

Plaintiff-appellant, Douglas Wall ("Wall"), appeals from a June 9, 2005 judgment of the United States District Court for the Southern District of New York (Daniels, J.), Wall v. Consolidated Rail Corp., No. 02-7924, 2005 WL 1384024 (S.D.N.Y. June 9, 2005), adopting the March 31, 2005 Report and Recommendation ("Report") of Magistrate Judge Michael H. Dolinger granting defendants-appellees CSX Transportation, Inc. and Conrail, Inc.'s (collectively, "Conrail") motion to dismiss complaint and denying leave to replead. Wall brought this diversity action pursuant to 28 U.S.C. § 1332, alleging that Conrail, his former employer, fraudulently induced him to enter a settlement agreement resolving an administrative complaint that Wall had filed against Conrail for alleged retaliation.


Douglas Wall, a Connecticut resident, was hired by Conrail as a brakeman in 1987 and was promoted to conductor in early 1988. He was certified as a locomotive engineer in March 1989 and continued working for Conrail in that capacity until February 1998. He worked primarily in New York.

On December 1, 1995, a Conrail train derailed in Yonkers, New York. The next morning, according to Wall's allegations, Conrail re-railed the train, but without the assistance of a certified locomotive engineer, which Wall maintains was in violation of Federal Railroad Administration regulations and the company's collective bargaining agreement with the International Brotherhood of Locomotive Engineers ("BLE"), of which Wall was a member. At the instruction of the BLE chairman, Wall videotaped the re-railing process.

Following the videotaping incident, Wall asserts, he suffered harassment at the hands of Conrail District Superintendent Jerome Mullen and others. In response to the harassment, a second union to which Wall belonged, the United Transportation Union ("UTU"), filed an administrative complaint on Wall's behalf under the Federal Rail Safety Act ("FRSA"). On the morning that his claim was scheduled to be heard, in Philadelphia, Pennsylvania, the parties reached an oral resolution of the matter, negotiated by Wall's own attorney, by the attorney and chairman of the UTU, and by Conrail's in-house counsel.

According to Wall, he was fraudulently induced to resign from Conrail, sign a settlement agreement and release, and discontinue an action that he had brought against Conrail which was then pending in

Page 414

New York State Supreme Court. The inducement for these concessions was an oral agreement that: (1) Conrail would facilitate Wall's employment as a locomotive engineer at Amtrak; (2) Conrail would always provide Wall's prospective employers with a neutral job reference; and (3) Conrail would never interfere with Wall's employment relationships. Wall alleges that these promises by Conrail were false and known to be false at the time they were made. In reliance on the promises made by Conrail, Wall discontinued an unrelated personal injury case and executed a settlement agreement and release.

The settlement agreement and release did not mention any obligations on the part of Conrail with respect to Wall's efforts to secure future employment with another employer, but simply provided, among other things, that: (1) Wall would resign from Conrail and never seek employment with Conrail or its successors again; (2) Wall would release Conrail from all claims; and (3) Conrail would pay Wall $20,000 after taxes. Significantly, the settlement agreement did not contain an integration or merger clause.

After resigning from Conrail, Wall sought employment from Amtrak and, later, from other railroads, but was not hired.1] He alleges on information and belief that Mullen or others at Conrail gave Amtrak "a very negative job reference" less than three months after promising to give a neutral reference, and that this negative reference cost him what would otherwise have been a strong chance of employment at Amtrak.

In October 2002 plaintiff brought this diversity action alleging fraud in the inducement and breach of contract claims, and amended his complaint in December 2002.2 Defendants moved to dismiss on February 13, 2003. Plaintiff opposed and sought leave to file a second amended complaint. Plaintiff subsequently agreed to the dismissal of his breach of contract claim, leaving only the fraud in the inducement claim. The motions were referred to the Magistrate Judge, who issued a report and recommendation on March 31, 2005 concluding that plaintiff's fraud in the inducement claim was not preempted by the Federal Railway Safety Act ("FRSA"), but that he failed to state a claim for which relief could be granted, whether analyzed under New York or Pennsylvania law. Magistrate Judge Dolinger recommended dismissal of plaintiff's claims and denial of plaintiff's motion to amend.

Both parties filed objections to the Report and Recommendation, and on June 8, 2005, the district court adopted the recommendations of the Magistrate Judge, dismissing the amended complaint and denying plaintiff leave to file a second amended complaint, but did not separately address the issue of preemption. Plaintiff filed a timely notice of appeal.

We now vacate the district court's decision and hold that plaintiff's claim is viable under both New York and Pennsylvania

Page 415

law and that his claim, as presently stated, is not preempted by the FRSA. We remand to the district court for further proceedings.



Conflict of Laws

In diversity cases, federal courts look to the laws of the forum state in deciding issues regarding conflicts of law. Krock v. Lipsay, 97 F.3d 640, 645 (2d Cir. 1996) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941)). As this case was brought in the Southern District of New York, New York law will apply for purposes of determining which state's substantive law should govern the dispute. Id.

Plaintiff argues that New York law should control because the job from which he was induced to resign by the fraud was located in New York. Defendants, in turn, argue that plaintiff's claim for fraudulent inducement fails under both Pennsylvania and New York law.

Under New York's conflict of laws approach, the New York Court of Appeals has held that "[t]he first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved." In re Allstate Ins. Co. (Stolarz), 81 N.Y.2d 219, 223, 613 N.E.2d 936, 937, 597 N.Y.S.2d 904, 905 (1993). Specifically, we analyze whether the two states--New York and Pennsylvania3--differ regarding the viability of a fraud in the inducement claim where the subject matter of the alleged misrepresentation is not addressed in the contract and where the contract the plaintiff was allegedly induced to enter does not contain a merger, or integration, clause.4 Although Pennsylvania case law on this point is difficult to navigate, and under one line of Pennsylvania cases the law would differ from that of New York, we ultimately conclude that the laws do not differ as they apply to the facts of this case.

a. New York law

Proof of fraud under New York law requires a showing that "(1) the defendant made a material false representation, (2) the defendant intended to defraud the

Page 416

plaintiff thereby, (3) the plaintiff reasonably relied upon the representation, and (4) the plaintiff suffered damage as a result of such reliance." Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 19 (2d Cir.1996) (quoting Banque Arabe et Internationale D'Investissement v. Md. Nat'l Bank, 57 F.3d 146, 153 (2d Cir.1995) (internal quotation marks omitted)); see also Vermeer Owners, Inc. v. Guterman, 78 N.Y.2d 1114, 1116, 585 N.E.2d 377, 378, 578 N.Y.S.2d 128, 129 (1991) (holding that a fraud action requires proof of "a representation of material fact, falsity, scienter, reliance and injury"); Ross v. DeLorenzo, 28 A.D.3d 631, 636, 813 N.Y.S.2d 756, 760 (2d Dep't 2006).

The Magistrate Judge here correctly noted that "[a]s a general matter, a fraud claim may not be used as a means of restating what is, in substance, a claim for breach of contract." Thus, "general allegations that defendant entered into a contract while lacking the intent to perform it are insufficient to support [a fraud] claim." New York Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 318, 662 N.E.2d 763, 639 N.Y.S.2d 283 (1995). One reason for this rule is to prevent parties from avoiding the Statute of Frauds by recharacterizing their contract claims as torts. See Lehman v. Dow Jones & Co., 783 F.2d 285, 294 (2d Cir. 1986) (Friendly, J.) ("New York courts have made it clear that a plaintiff may not circumvent the Statute of Frauds . . . by simply recasting his...

To continue reading