Economides v. Gay, No. CIV.A. DKC 2000-2531.

• Decision Date: 08 August 2001
• Docket Number: No. CIV.A. DKC 2000-2531.
• Citation: 155 F.Supp.2d 485
• Parties: Frank ECONOMIDES et al. v. Carlton F. GAY, et al.
• Court: U.S. District Court — District of Maryland

155 F.Supp.2d 485

Frank ECONOMIDES et al. v. Carlton F. GAY, et al.

No. CIV.A. DKC 2000-2531.

United States District Court, D. Maryland.

August 8, 2001.

Athanasios T. Tsimedes, Law Office, Rockville, MD, for Plaintiffs.

Michael J. Budow, Budow & Noble, Bethesda, MD, K. Stewart Evans, Jr., Pepper Hamilton, LLP, Washington, DC, for Defendants.

MEMORANDUM OPINION

CHASANOW, District Judge.

Plaintiff Frank Economides and his wife, Constandina, have filed this tort and breach of contract action for themselves and on behalf of their children, Vassiliki, Constandina, and Franciscos (hereinafter referred collectively as "the Economides") against Defendants Carlton Gay and Dean Witter Reynolds, Inc. ("Dean Witter"). Presently pending are Mr. Gay's motion to dismiss, or in the alternative, for summary judgment and Dean Witter's motion for judgment on the pleadings or, in the alternative, for summary judgment.¹ The issues are fully briefed, and no hearing is deemed necessary. Local Rule 105.6. For the following reasons, these motions shall be granted.²

I. Background

According to the complaint, Frank Economides and his wife, Constandina, met with Mr. Gay, a senior vice president at Dean Witter, in March 1995 to open custodial accounts (referred to in the complaint as "UTMA accounts") on behalf of their children. The Economides allege that they told Mr. Gay that the UTMA accounts must only contain conservative investments. On March 22, 1995, Mr. Gay recommended that they purchase stock in Biocontrol Technology, Inc. ("BICO"); an investment Plaintiffs now view as highly speculative. Compl., ¶ 16. Plaintiffs also allege that Mr. Gay made representations that BICO produced a product that would eliminate the need for diabetics to prick their fingers to test their insulin and that based on inside information, approval from the Food and Drug Administration ("FDA") was imminent. Id.³

Plaintiffs authorized Mr. Gay to purchase shares of BICO stock and allege that because of Mr. Gay's representations about BICO, they purchased additional stock in the company through a discount broker. Plaintiffs allege that from March 1996 through 1998, Mr. Gay recommended increased investment in BICO stock because it constituted a solid conservative investment and FDA approval was imminent on BICO's product, although Proctor and Gamble was causing delays. Pls. Compl. at ¶ 20. In fact, fifteen year old Franciscos in May 1996 spent $700.00 on BICO stock allegedly based on Mr. Gay's advice. Compl. at ¶ 18. Moreover, Plaintiffs contend that Mr. Gay knew (1) that BICO stock was a high risk investment; (2) that the BICO product would not receive FDA approval because the product was not as accurate as purported; (3) that Plaintiffs were relying on his advice to invest additional funds outside the UTMA accounts for their own personal retirement portfolios; and (4) that a class action lawsuit had been filed against BICO in 1996. Compl. at ¶ 21.

Mr. Gay left Dean Witter on January 16, 1998, and Elizabeth Boswell became Plaintiffs' stock broker. On April 3, 2000, the Economides sold all of the BICO shares in the UTMA accounts of Franciscos and Vassiliki. Plaintiffs claim that had they known that BICO was not a conservative stock or that a class action suit had been filed, they would not have permitted defendant to invest the UMTA funds nor would they have invested their retirement funds through a discount broker. They assert that Defendants' misconduct resulted in losses of $ 190,000 in BICO stock purchases. Pl. Compl. at ¶ 24.

II. Standard of Review

A motion to dismiss under Fed.R.Civ.P. 12(b)(6) "tests the sufficiency of a complaint importantly, it does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses." Republican Party v. Martin, 980 F.2d 943, 952 (4th Cir.1992). The motion should not be granted unless it appears the plaintiff can prove no set of facts that would entitle him to relief. See Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir.1993). Moreover, in considering the facts of the case for purposes of ruling on the Defendant's motion, the court will view the pleadings and materials presented in the light most favorable to the plaintiff, as the nonmoving party, assuming all factual allegations to be true. See e.g., Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984). It is important to note, however, that for purposes of Rule 12(b)(6), the court is not required to accept as true the legal conclusions set forth in a plaintiff's complaint. See District 28, United Mine Workers of Am., Inc. v. Wellmore Coal Corp., 609 F.2d 1083, 1085 (4th Cir.1979); Edwards v. City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir.1999). In addition, the circumstances constituting alleged fraud must be pled with particularity. Fed.R.Civ.P. 9(b).

Rule 12 of the Federal Civil Rules of Procedure provides that after the pleadings are closed any party may move the court for a judgment on the pleadings. Fed.R.Civ.P. 12(c). The standard for granting judgment on the pleadings is similar to the standard under Rule 12(b)(6). Gustafson v. Jones, 117 F.3d 1015, 1017 (7th Cir.1997); 2 Moore's Federal Practice, § 16.05 (3d. ed. 2001)("The trial court may grant a judgment on the pleadings pursuant to Rule 12(c) only if it appears beyond doubt that the nonmoving party cannot prove any facts that would support his or her claim for relief, after it has accepted all well-pleaded allegations in the pleading as true, and drawn all reasonable inferences in favor of the nonmoving party.").

III. Analysis

Plaintiffs have brought five counts against Mr. Gay and Dean Witter: 1) constructive fraud; 2) intentional misrepresentation; 3) negligent misrepresentation; 4) breach of contract; and 5) negligent hiring, supervision, and retention. Defendants move to dismiss, collectively, on the grounds that a) Plaintiffs could not reasonably rely on opinions and predictive statements, b) the complaint fails to allege the bad intent needed for intentional or negligent misrepresentation, c) no contract is alleged to have existed, d) no specific act of misconduct is alleged regarding the hiring of Mr. Gay by Dean Witter, e) the basis for some of the compensatory damages and any claim for punitive damages is lacking, and, f) finally, that all claims are barred by the statute of limitation.⁴ As more fully explained below, only some of these issues need be addressed because Plaintiffs' complaint fails as a matter of law.

A. Actionable Statements

Whether alleging fraud or intentional or negligent misrepresentation, Plaintiffs must allege that the statements made by Mr. Gay are actionable. Mr. Gay's false representations alleged by Plaintiffs are as follows: 1) BICO was a good conservative investment; and 2) FDA approval of the product was near and the BICO stock would soon increase in value. Despite the clear presentation of this argument in Dean Witter's motion, plaintiffs have utterly failed to address it in their response.

In Maryland, "statements which are merely promissory in nature and expressions as to what will happen in the future are not actionable as fraud." Miller v. Fairchild Indus., Inc., 97 Md.App. 324, 342, 629 A.2d 1293, 1302 (1993) (quoting Finch v. Hughes Aircraft Co., 57 Md. App. 190, 232, 469 A.2d 867 (1984)); Rizika v. Merrill Lynch, Pierce, Fenner, and Smith, Inc., No. M-80-1418, 1981 WL 1619, at *2 (D.Md. Jan. 28, 1981) ("Generally speaking, an action for fraud can only be predicated upon misrepresentation of past or existing fact."); Miller v. Premier Corp., 608 F.2d 973, 981 (4th Cir.1979) (applying South Carolina law) (finding "a false prediction or promise of future events generally cannot be a basis for fraud because it is not a representation, there is not a right to rely on it, and it is not false when made.").

Mr. Gay's alleged representation that BICO stock was a conservative stock investment is not actionable because it represents his opinion, not a past or existing fact. Thus, even assuming that Mr. Gay made the representation and was mistaken, his opinion alone does not constitute an adequate foundation for a fraud claim. Additionally, Plaintiffs present absolutely no authority or argument to support the proposition that these statements are actionable.

Moreover, "mere expressions of hope or expectation regarding future [agency] approval [of a product], not worded as guarantees, are not actionable." In re Medimmune Sec. Lit., 873 F.Supp. 953, 954 (D.Md.1995). While Plaintiffs do allege that Mr. Gay represented the FDA would approve BICO's product "any day now", they do not allege that Mr. Gay ever guaranteed that the product would receive approval. In fact, they allege that he specified Proctor and Gamble as a current thorn in the FDA approval process. Thus, neither Mr. Gay's statements about the conservative nature of the BICO investment nor the product obtaining future FDA approval are actionable as fraud or...