Maltz v. Union Carbide Chemicals & Plastics Co.
| Citation | 992 F.Supp. 286 |
| Decision Date | 20 January 1998 |
| Docket Number | No. 96 Civ. 2512( KMW) (THK).,No. 96 Civ. 2697(KMW) (THK).,96 Civ. 2512( KMW) (THK).,96 Civ. 2697(KMW) (THK). |
| Parties | Jerry MALTZ, Marble Life of Houston, Nick Began, Marble Care, Doug Selik, Marble Life of San Diego, Ellen Lynch and Marble Life of S. Orange County, Plaintiffs, v. UNION CARBIDE CHEMICALS & PLASTICS COMPANY, INC., Union Carbide Corp., Ralph Lutjen, David M. Jones, R.D. Kennedy and Michael Neary, Defendants. Jerry MALTZ, Marble Life of Houston, Nick Began, Marble Care, Doug Selik, Marble Life of San Diego, Ellen Lynch and Marble Life of S. Orange County, Plaintiffs, v. UNION CARBIDE MARBLE CARE, INC. Gerald Ehrens, Richard W. Brookcman, Reed Freeman, John Clerico, David M. Jones and Michael Negro, Defendants. |
| Court | United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York |
Randall O. Sorrels, Abraham, Watkins, Nichols, Ballard & Friend, Houston, TX.
Daniel Gildin, Kaufmann, Feiner, Yamin, Gildin & Robbins, New York City.
In a Report and Recommendation dated May 20, 1997 (the "Report"), Magistrate Judge Theodore H. Katz recommended that defendants' motion to dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6) be granted in part and denied in part. Defendants (other than Michael Neary) have filed timely objection to the Report. These defendants object to the recommendation of the Report that defendants' motion to dismiss be denied as to: (1) plaintiffs, fraud claims against all the individual defendants except Richard W. Broockman and David M. Jones, (2) plaintiffs' negligent misrepresentation claims against all the individual defendants except Broockman and Jones, (3) plaintiffs' civil conspiracy claims, and (4) plaintiffs' tortious inference with contract claims against defendants R.D. Kennedy and Ralph Lutjen. Plaintiffs have filed a timely response to these objections.
Pursuant to Federal Rule of Civil Procedure 72(b) and 28 U.S.C. § 636(b), I have reviewed de novo those aspects of the Report to which defendants object. I find that defendants' objections are adequately addressed by the Report. I hereby accept and adopt the Report, attached hereto, in its entirety. For the reasons stated in the Report, I grant defendants' motion to dismiss in part and deny it in part. Specifically, I:(1) dismiss plaintiffs' state statutory claims brought pursuant to the Texas Deceptive Trade Practices Act, the Connecticut Unfair Trade Practices Act, and the California Franchise Investment Law; (2) dismiss all claims against defendant Union Carbide Corporation ("UCC"); (3) dismiss all claims for tortious interference with prospective business relations; (4) limit the remedy for breach of warranty claims against defendants Union Carbide Marble Care ("UCMC") and Union Carbide Chemicals and Plastics Company, Inc. ("UCC&P") to the replacement or purchase price of the warrantied goods. Defendants' motion to dismiss is denied in all other respects.
SO ORDERED.
REPORT AND RECOMMENDATION
This action was referred to me pursuant to your Order of Reference, for general pretrial supervision and the resolution of dispositive motions requiring a Report and Recommendation. Plaintiffs are five individuals and the five corporate franchises in which they hold stock and which were formed pursuant to agreements entered into with defendant Union Carbide Marble Care, Inc. ("UCMC"). Defendants are UCMC, Union Carbide Chemicals and Plastics Company Inc. ("UCC&P"), parent and owner of ninety-two percent of the stock of UCMC, Union Carbide Corporation ("UCC"), parent and owner of UCC&P, and a number of individuals who are current or former directors, officers or employees of the three corporate defendants.1 Plaintiffs assert numerous claims against defendants in connection with their franchise agreements with UCMC, alleging, inter alia, breach of contract and warranty, a number of tort claims alleging negligent and fraudulent behavior, and violations of a number of state statutes. Currently before the Court is defendants' motion to dismiss in part the Amended Complaint, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. The Court heard oral argument on the motion on February 5, 1997. For the reasons that follow, I recommend that the motion be granted in part and denied in part.
Between May, 1990 and August, 1991, each of the individual plaintiffs entered into franchise agreements with UCMC. (Plaintiff's Amended Complaint, dated August 14, 1996 ("Am.Compl."), at ¶¶ 36, 44, 51, 57, 68.) In essence, in exchange for certain payments, the agreements granted each of the franchisees the right to operate one "Marblelife" business in a specifically defined territory.
The Amended complaint sets forth in detail the background of the Marblelife enterprise, but a short synopsis will suffice for present purposes. In the late 1980s, UCC implemented the "Intrepeneurship" program, designed to foster new business ventures within Union Carbide. (Am.Compl. at ¶ 19.) As part of this program, UCC&P undertook an effort to exploit the market for marble care chemicals by providing a marble care service offering uniform chemicals, techniques and results. (Am.Compl. at ¶¶ 19-21.) The project was spearheaded by defendant Richard Broockman ("Broockman"), who later became President of UCMC, and a team from UCC&P, who set about developing a business plan for the implementation of a nationwide franchise system of marble care specialists. (Id. at ¶¶ 205-25.) In an effort to gain knowledge and experience in the marble care industry, UCC&P acquired an existing marble care company, which then became its subsidiary, UCMC. (Id. at ¶¶ 23, 28.) The new venture was coined "Marblelife." (Id. at ¶ 29.)
As a result of advertisements and other solicitations placed by UCMC, each of the individual plaintiffs inquired about, and eventually acquired, a Marblelife franchise. (See Id. at ¶¶ 31, 38, 46, 54, 63.) The individual plaintiffs allege that prior to entering into the franchise agreements, defendants Broockman and David M. Jones ("Jones"), Vice President of UCMC, made material misrepresentations about the Marblelife system, the chemicals used in the system and the right under the franchise agreement to use by the franchisees of the Union Carbide name and trademark, (Id. at ¶¶ 34, 40, 48, 55, 66), all of which they allege induced them into entering into the agreements. Plaintiffs further allege that they were induced to continue making purchases of chemicals and equipment under their franchise agreements because they were repeatedly, and falsely, assured by Broockman and defendant Reed Freeman ("Freeman") that UCC&P was not seeking a buyer for UCMC. (Id. at ¶¶ 70-73.)
On October 27, 1995, plaintiffs commenced this action by filing two lawsuits in the Texas state courts, each of which was against some of the defendants named in the Amended Complaint. Those actions were removed by the defendants to the United States District Court for the Southern District of Texas (Houston Division) based on diversity jurisdiction. That court denied the plaintiffs' motion to remand the cases to state court and the motion of the defendants to dismiss based on the forum selection clause in the franchise agreements. (See Consolidation and Transfer Order, dated April 1, 1996.) The court then transferred the two actions to the Southern District of New York "pursuant to the franchise agreements' forum selection clause." (Id.) In June, 1996, defendants moved to dismiss the Complaints, but later agreed to withdraw that motion to afford plaintiffs the opportunity to file an amended complaint in order to cure the deficiencies in the original Complaints. After the actions were consolidated for all pretrial purposes (See Order, dated October 1, 1996), plaintiffs filed their Amended Complaint. Read liberally, the Amended Complaint appears to allege as to all defendants the following causes of action: violations of the California Franchise Investment Law, the Massachusetts Regulation of Business Practices for Consumer Protection Law, the Connecticut Unfair Trade Practices Law and the Texas Deceptive Trade Practices Act (collectively, "the state statutory claims")2; fraudulent misrepresentation; fraudulent omissions; breach of warranty; civil conspiracy; and negligence. As to UCMC, UCC and UCC&P only, the Amended Complaint also alleges breach of contract and, as to UCC, UCC&P and individual defendants Ralph Lutjen and R.D. Kennedy only, the Amended Complaint additionally alleges tortious interference with contract and tortious interference with prospective business relations. Liability of UCC and UCC&P for the breaches of contract appears to hinge on the theory that UCMC was the alter ego of its corporate parent and grandparent. (Am.Compl. at ¶ 110.) Plaintiffs seek an undisclosed sum in damages, attorneys fees, costs and interest. Defendants move to dismiss all of the claims as to all defendants with the exceptions, as to UCMC only, of the breach of contract claim and, as limited under the terms of the franchise agreements, the breach of warranty claims.
In deciding a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must construe the allegations of the complaint in the plaintiff's favor. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). See also PaineWebber Inc. v. Bybyk, 81 F.3d 1193, 1197 (2d Cir.1996); Hernandez v. Coughlin, 18 F.3d 133, 136 (2d Cir.), cert. denied, 513 U.S. 836, 115 S.Ct. 117, 130 L.Ed.2d 63 (1994); Dahlberg v. Becker, 748 F.2d 85, 88 (2d Cir.1984), cert. denied, 470 U.S. 1084, 105 S.Ct. 1845, 85 L.Ed.2d 144 (1985). The Court must draw all reasonable inferences in plaintiffs' favor and may dismiss only if "it appears beyond doubt...
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