Enhance-It, L.L.C. v. American Access Technologies

• Decision Date: 23 January 2006
• Docket Number: C.A. No. 9:05-0546-23.
• Citation: 413 F.Supp.2d 626
• Court: U.S. District Court — District of South Carolina
• Parties: ENHANCE-IT, L.L.C., Plaintiff, v. AMERICAN ACCESS TECHNOLOGIES, INC., Defendant.

Page 626

413 F.Supp.2d 626

ENHANCE-IT, L.L.C., Plaintiff, v. AMERICAN ACCESS TECHNOLOGIES, INC., Defendant.

C.A. No. 9:05-0546-23.

United States District Court, D. South Carolina, Beaufort Division.

January 23, 2006.

COPYRIGHT MATERIAL OMITTED

Daryl G. Hawkins, Lewis Babcock and Hawkins, Columbia, SC, Thomas A. Pendarvis, Pendarvis Law Office, Beaufort, SC, for Plaintiff.

Bradish Johnson Waring, Nexsen Pruet Jacobs Pollard and Robinson, Kelly Jones Leventis, Carlock Copeland Semler and Stair, Charleston, SC, Phil A. D'Aniello, Fassett Anathony and Taylor, Orlando, FL, for Defendant.

ORDER

DUFFY, District Judge.

This matter is before the court on Plaintiff Enhance-It, L.L.C.'s ("Enhance-It" or "Plaintiff") Motion to Amend its Complaint. Defendant American Access Technologies, Inc. ("AAT" or "Defendant") opposes this Motion.

BACKGROUND

Plaintiff Enhance-It is a South Carolina limited liability company that purchased ultraviolet lighting products from AAT and AAT's predecessor in interest. In its Second Amended Complaint, Plaintiff alleged that AAT shipped it defective goods, and asserted causes of action for (1) breach of contract, (2) negligence, (3) fraud and misrepresentation, (4) breach of warranty of merchantability, (5) breach of warranty of fitness for particular use, (6) breach of express warranty, and (7) breach of contract accompanied by a fraudulent act. In an order dated October 5, 2005, the court dismissed Plaintiff's Second (negligence), Third (fraud and misrepresentation), and Seventh (breach of contract accompanied by fraudulent act) causes of action. The court dismissed the Third and Seventh causes of action because the Second Amended Complaint did not include specific factual allegations sufficient to meet the heightened pleading requirements of Rule 9(b).¹

On October 19, 2005, based upon the parties' agreement and consent, the court entered an Amended Scheduling Order. Under this Order, the parties had until December 1, 2005 to file motions to amend their pleadings. Accordingly, on December 1, 2005, Plaintiff filed a Motion to Amend the Second Amended Complaint and attached a proposed Third Amended Complaint. This Third Amended Complaint attempts to correct those deficiencies of the Second Amended Complaint that prompted this court to dismiss Plaintiffs fraud and breach of contract accompanied by a fraudulent act causes of action.²

STANDARD OF REVIEW

Rule 15(a) of the Federal Rules of Civil Procedure requires that leave to amend a pleading "be freely given when justice so requires." While this court is given discretion to deny the motion to amend, "that discretion is limited by the interpretation given Rule 15(a) in [Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962)] `and by the general policy embodied in the Federal Rules favoring resolution of cases on their merits.' " Island Creek Coal Co. v. Lake Shore, Inc., 832 F.2d 274, 279 (4th Cir.1987) (citation omitted). Upholding the letter and the spirit of this rule, "leave to amend a pleading should be denied only when the amendment would be prejudicial to the opposing party, there has been bad faith on the part of the moving party, or the amendment would be futile." Edwards v. City of Goldsboro, 178 F.3d 231, 242 (4th Cir.1999) (quoting Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th Cir. 1986)) (emphasis in original). A delay in bringing a proposed amendment is insufficient reason to deny leave to amend. Id.

For a motion to amend to be denied for futility, the amendment must be "clearly insufficient or frivolous on its face." Oroweat Foods Co., 785 F.2d at 510-511; see also, Rambus, Inc. v. Infineon Technologies, AG, 304 F.Supp.2d 812, 819 (E.D.Va.2004) ("Courts generally favor the `resolution of cases on their merits' ... [t]hus the substantive merits of a proposed claim [or defense] are typically best left for later resolution, e.g., motions to dismiss or for summary judgment, ..., or for resolution at trial.") (quoting Davis v. Piper Aircraft Corp., 615 F.2d 606, 613 (4th Cir. 1980)); see also Robinson v. GEO Licensing Co., L.L.C., 173 F.Supp.2d 419, 423 (D.Md.2001).

ANALYSIS

In this case, because Plaintiff filed the Motion to Amend the complaint within the time prescribed by the scheduling order, Defendant cannot claim that the proposed amendment was untimely. Nonetheless, Defendant argues that Plaintiffs motion should be denied because it is futile. Defendant contends that the proposed additional causes of action—fraud and breach of contract accompanied by fraudulent act—would not survive a motion to dismiss for failure to state a claim (1) because the allegedly false statement made by Defendant was an expression of opinion and cannot be considered fraudulent; and (2) because these causes of action are barred by South Carolina law.

(1) False Statement

Under South Carolina law, in order to prove fraud, the following elements must be shown: (1) a representation; (2) its falsity; (3) its materiality; (4) either knowledge of its falsity or a reckless disregard of its truth or falsity; (5) intent that the representation be acted upon; (6) the hearer's ignorance of its falsity; (7) the hearer's reliance on its truth; (8) the hearer's right to rely thereon; and (9) the hearer's consequent and proximate injury. Regions Bank v. Schmauch, 354 S.C. 648, 582 S.E.2d 432, 444 (2003). Defendant claims that the facts as alleged in the proposed Third Amended Complaint do not support a fraud cause of action and that the motion to amend should therefore be denied as futile. Specifically, Defendant argues that Plaintiff's proposed Complaint fails to describe a representation by Defendant that can be considered false.³

As the Supreme Court of South Carolina has held:

Deceit or fraudulent representation, in order to be actionable, must relate to existing or past facts, and the fact that a promise made in the course of negotiations is never performed does not in and of itself constitute nor evidence fraud. A mere breach of a contract does not constitute fraud .... [a] future promise is not fraudulent unless such a future promise was part of a general design or plan existing at the time, made as part of a general scheme to induce the signing of a paper or to make one act, as he otherwise would not have acted, to his injury.

Coleman v. Stevens, 124 S.C. 8, 117 S.E. 305, 307 (1923); see also Bishop Logging Co. v. John Deere Indus. Equipment Co., 455 S.E.2d 183, 187-188 (1995) (holding that, where a fully mechanized swamp logging system was an unprecedented and untried concept and the defendant informed plaintiff that the system had never been attempted, the defendant's statements about the future performance of the system were statements of opinion or promises of future performance as opposed to false statements of present or pre-existing fact; therefore, the defendant's representation cannot be the basis for a finding of fraud).

In this case, the representation Plaintiff claims to be false is as follows: John Presley, a representative of AAT, allegedly told Plaintiff that AAT "had tested a new ballast to be utilized in the UV lighting it was selling to Plaintiff ... and that it had tested the ballast for a year with good results, and that the new ballast would be better than the part it replaced." (Third Amended Complaint at 4.) Plaintiff further alleges that John Presley "knew the ballast had not been tested for a year, and further knew that rather than obtaining 'good results' from the testing, the results demonstrated that the ballasts were defective." (Third Amended Complaint at 4.) Defendant argues that these alleged statements are merely statements of opinion and expressions of intention and are not a proper basis for an action in fraud.

Defendant is correct that any representations or guarantees as to the future performance of the ballasts are not actionable. Nonetheless, the representation that the ballasts had been tested, regardless of the results of these tests, is a representation of fact, not opinion. Accordingly, if the ballasts had, in fact, not been tested, representing that they had been tested is a false representation of a pre-existing fact that can serve as the basis for a fraud cause of action. The court therefore finds that the Third Amended Complaint alleges the necessary elements of fraud such that the proposed amendment is not obviously futile.

(2) South Carolina Law Regarding the Economic Loss Rule and Election of Remedies

Defendant alleges that Plaintiff is requesting a remedy in tort for what is a purely breach of contract claim. Defendant therefore argues that South Carolina's economic loss rule bars these tort claims. Defendant correctly notes that under South Carolina law, "if the cause of action is predicated on the alleged breach, or even negligent breach, of a contract between the parties, an action in tort will not lie." Meddin v. Southern Ry.-Carolina Division, 218 S.C. 155, 62 S.E.2d 109, 112 (1950); see Tadlock Painting Co. v. Maryland Cas. Co., 322 S.C. 498, 473 S.E.2d 52, 55 (1996) (stating that the South Carolina Court of Appeals upheld the trial court's dismissal of the negligence action because the basis Of it was breach of the contract, and the law is well-settled that breach of contractual duties does not give rise to an action in tort for negligence); Foxfire Village, Inc. v. Black & Veatch, Inc., 304 S.C. 366, 404 S.E.2d 912, 917-918 (1991) ("As a matter of law, if the duty to advise another arises merely from agreement of the parties, breach of the duty does not create a cause of action for negligent conduct."). However, where the contract creates a certain relationship between the parties, and certain duties arise by operation of law, irrespective of the contract, because of this relationship, the breach of such duties will warrant an action in tort. See Kennedy v. Columbia Lumber and Mfg. Co., Inc., 299 S.C. 335, 384 S.E.2d 730, 737 (1989) (holding that a cause of...