Goebel v. Schmid Bros., Inc.

• Decision Date: 14 October 1994
• Docket Number: Civ. A. No. 93-12737-REK.
• Citation: 871 F. Supp. 68
• Parties: Wilhelm GOEBEL and Ulrich Stocke, General Partners of W. Goebel Porzellanfabrik KG, a German Limited Partnership, individually and on behalf of the partnership, and Goebel Art GmbH, Plaintiffs, v. SCHMID BROTHERS, INC., Schmid, a Massachusetts Business Trust, Schmid, Inc., Paul A. Schmid, III, Morris Zukerman, and M.E. Zukerman & Co., Defendants. SCHMID, INC., Plaintiff-in-Counterclaim, v. Wilhelm GOEBEL and Ulrich Stocke, as individuals and representatives of W. Goebel Porzellanfabrik, a German Limited Partnership, Goebel Art GmbH, Goebel Marketing Company, and Broad Street Financial Company, Defendants-in-Counterclaim.
• Court: U.S. District Court — District of Massachusetts

871 F. Supp. 68

Wilhelm GOEBEL and Ulrich Stocke, General Partners of W. Goebel Porzellanfabrik KG, a German Limited Partnership, individually and on behalf of the partnership, and Goebel Art GmbH, Plaintiffs, v. SCHMID BROTHERS, INC., Schmid, a Massachusetts Business Trust, Schmid, Inc., Paul A. Schmid, III, Morris Zukerman, and M.E. Zukerman & Co., Defendants.

SCHMID, INC., Plaintiff-in-Counterclaim, v. Wilhelm GOEBEL and Ulrich Stocke, as individuals and representatives of W. Goebel Porzellanfabrik, a German Limited Partnership, Goebel Art GmbH, Goebel Marketing Company, and Broad Street Financial Company, Defendants-in-Counterclaim.

Civ. A. No. 93-12737-REK.

United States District Court, D. Massachusetts.

October 14, 1994.

James S. Dittmar, Richard Lavin, Andrew Troop, Hutchins & Wheeler, Boston, MA, Charles J. Kurtz, III, Jack R. Pigman, Jean Y. Teteris, and Jennifer T. Mills, Porter, Wright, Morris & Arthur, Columbus, OH, for W. Goebel Porzellanfabrik KG, Goebel Marketing Co., and Broad Street Financial Co.

Stephen D. Poss, Michael J. Pappone, and Donald B. Gould, Goodwin, Proctor & Hoar, Boston, MA, for Schmid Bros. Inc.

Andrew Z. Schwartz and Donald R. Ware, Foley, Hoag & Eliot, Boston, MA, for Paul A. Schmid, III.

Thomas J. Dougherty, Skadden, Arps, Slate, Meagher & Flom, Boston, MA and Jay B. Kasner, Skadden, Arps, Slate, Meagher & Flom, New York City, for Morris Zuckerman.

Patrick P. Dinardo and Lena G. Goldberg, Sullivan & Worcester, Boston, MA, for Official Unsecured Creditors Committee.

MEMORANDUM AND ORDER

KEETON, District Judge.

Now pending before this court is defendant Paul A. Schmid, III's Motion to Dismiss Amended Complaint (Docket No. 47, filed March 4, 1994), with supporting memoranda (Docket No. 48, filed March 4, 1994, Docket No. 74, filed March 30, 1994). Plaintiffs filed a memorandum in opposition to the motion to dismiss (Docket No. 67, filed March 21, 1994).

On June 24, 1994, this court granted defendant Schmid's motion to dismiss all alter ego claims against him. Pursuant to the parties' request, the court allowed submission of supplemental memoranda and responses thereto on the motion to dismiss the remaining (ninth) claim for relief against Mr. Schmid for fraudulent misrepresentation. (Docket No. 116, filed July 13, 1994; Docket No. 120, filed July 20, 1994; Docket No. 119, filed July 13, 1994; Docket No. 117, filed July 20, 1994).

This Memorandum addresses the claim against Mr. Schmid for fraudulent misrepresentation.

I. Background

The claim against Paul A. Schmid, III ("Mr. Schmid") for fraudulent misrepresentation is part of a larger complaint (consisting of eleven counts) against Mr. Schmid, Morris E. Zukerman and M.E. Zukerman & Co., and three business entities that are sometimes referred to in this Memorandum as "Schmid". The three entities are Schmid Brothers, Inc. (an entity no longer in existence), Schmid, a Massachusetts Business Trust, and Schmid, Inc. All three are Massachusetts entities with principal places of business in Randolph, Massachusetts.

Plaintiffs are W. Goebel Porzellanfabrik KG, a German Limited Partnership, and Goebel Art GmbH, a German corporation wholly owned by Goebel. Third Amended Complaint ¶ 2. Unless otherwise noted, the term "Goebel" in this Memorandum will refer to both Goebel (the partnership) and Goebel Art (the corporation).

Most of Goebel's claims are directed against Schmid. These claims include breach of contract, bad faith, open account and goods sold and delivered, trademark infringement, unfair competition, tortious interference with business relations, and fraud. The individual defendants (Mr. Schmid and Mr. Zukerman) are implicated only in the alleged fraud.

This civil action is a result of the breakdown of a long-time business relationship between Goebel and Schmid.

Goebel manufactures figurines in Bavaria, Germany, its principal place of business. Complaint ¶¶ 2, 8. Since 1937, Schmid has purchased these figurines from Goebel for distribution in the United States. Third Amended Complaint ¶ 10. Goebel and Schmid entered into an Exclusive Distribution Agreement ("EDA") in 1988. Id. at ¶ 11. Goebel alleges that various failures by Schmid, Inc., to perform its obligations under the EDA led to Payments Agreements in August 1992 (Third Amended Complaint ¶ 22) and February 1993 (Third Amended Complaint ¶ 34). Goebel bases its claim against Mr. Schmid for fraudulent misrepresentation on his conduct relating to the February 1993 Payments Agreement between Goebel and Schmid.

II. Legal Standard

In deciding the present motion to dismiss, this court must accept as true all well-pleaded factual assertions in plaintiffs' complaint and draw all reasonable inferences from those assertions in plaintiffs' favor. Roth v. United States, 952 F.2d 611, 613 (1st Cir. 1991) (citation omitted).

Before a court grants a motion to dismiss for failure to state a claim, ordinarily it must allow an opportunity to amend the complaint, and clarify the factual allegations to satisfy the requirements of a valid legal cause of action, if that can be done consistently with the pleader's obligations under Rule 11 of the Federal Rules of Civil Procedure. See Wyatt v. City of Boston, 35 F.3d 13, 14-15 (1st Cir.1994). In this case, however, plaintiffs have had ample opportunity to reconsider and present a perfected complaint. Thus, plaintiffs' Third Amended Complaint (Docket No. 57, filed March 14, 1994), filed after defendant Schmid's motion to dismiss (Docket No. 47, filed March 4, 1994), is properly before the court for consideration on the merits.

Also, plaintiffs have had ample notice that in some form (whether in the amended complaint or in other documents submitted to the court) factual particularity of their claims is required because, to some extent at least, they are claims of a type to which Rule 9(b) applies, and because the court has given notice in conferences on this case that vague statements or claims that might have passed muster under Leatherman v. Tarrant County Narcotics Intelligence and Coordination Unit, 507 U.S. ___, 113 S.Ct. 1160, 122 L.Ed.2d 517 (1993), at an earlier stage of proceedings in this case are not sufficient at this advanced stage when the first phase of trial before a jury is imminent.

See, e.g., Roth, 952 F.2d at 613 (at a minimum, plaintiffs are "obliged to set forth factual allegations, either direct or inferential, respecting each material element necessary to sustain recovery under some actionable legal theory") (citation and internal quotation marks omitted); Feliciano v. DuBois, 846 F.Supp. 1033, 1042-43 (D.Mass.1994) (imposing particularity-of-claim requirement in case management order even where particularity of complaint is not required).

III. The Pleading of Claims Against Mr. Schmid

A. The Third Amended Complaint

Plaintiffs allege that Mr. Schmid, a Massachusetts citizen, is one of the owners of Schmid, Inc., and that he personally directs and controls all actions of that corporation. Third Amended Complaint ¶ 4. Mr. Zukerman, a citizen of New York, is a business consultant who does business under the name M.E. Zukerman & Co., id. at ¶ 5; he is also a director of Schmid, Inc., id. at ¶ 33.

On January 5, 1993, Goebel notified Mr. Schmid that Schmid had broken the August 1992 Payments Agreement and verbal promises by Jim Godsill, the Chief Operating Officer of Schmid, to make certain payments. Third Amended Complaint ¶ 24. Goebel, worried about Schmid's financial condition, asked Mr. Schmid for financial information concerning Schmid. Id. On January 7, Mr. Godsill informed Goebel that such information would be made available. Id. at ¶ 26. Schmid sent the information on January 15, 1993, representing that it set forth Schmid's financial condition for the year ending December 31, 1992. Id. at ¶ 27.

An account of relevant subsequent events, as described in the Third Amended Complaint, is set forth below.

¶ 31. On January 23, 1993, Schmid met with Goebel in New York City. The first meeting took place beginning at 10:00 am in a conference room of the St. Regis Hotel and was followed by another meeting at 2:00 pm on January 26, 1993, at Mr. Zukerman's club, which it is believed was the University Club. The participants were Paul Schmid III, James Godsill and Mr. Zukerman, for Schmid and Wilhelm Goebel, Dieter Schneider and Karlheinz Muller, for Goebel.

. . . . .

¶ 33. Mr. Muller told those present that he did not believe that the Schmid financial statements could be correct. He indicated that his calculations and his experience led him to the conclusion that Schmid would have a great loss for 1992 rather than the profit of $1,500,000 shown in the financial figures given to Goebel by Schmid. This poor financial condition of Schmid would have made it impossible for Goebel to have any security for its "loans to Schmid" in the event that the payment schedule was further extended. Mr. Zukerman, who led the discussions for Schmid, as he had since the ARS negotiations in early 1991, took immediate offense. He assured the representatives of Goebel that he was a Director of Schmid, that he has a personal interest in Schmid and that in these capacities he knows the condition of the Company and that "the loss that you Goebel are predicting will not occur." He responded further, as he had on other occasions, that nothing bad would happen to Schmid, but if it did, he would arrange for or obtain any necessary capital and that Goebel should trust him. He particularly appealed to Mr. Goebel to trust him. Mr. Zukerman then lectured the Goebel representatives, emphasizing his knowledge and experience with figures and companies as a merger and acquisition consultant and told the Goebel representatives that he was correct. Goebel accepted and relied upon the express representations and promises of Mr. Zukerman that the financial statements were accurate and correct, and that the financial condition of the company was

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