Ohm Remediation Services v. Hughes Environmental

• Court: U.S. District Court — Northern District of New York
• Writing for the Court: McAvoy
• Citation: Ohm Remediation Services v. Hughes Environmental, 952 F.Supp. 120 (N.D. N.Y. 1997)
• Decision Date: 22 January 1997
• Docket Number: No. 96-CV-110.,96-CV-110.
• Parties: OHM REMEDIATION SERVICES CORP., Plaintiff, v. HUGHES ENVIRONMENTAL SYSTEMS, INC., ERM Northeast, Inc., Defendants.

Page 120

952 F.Supp. 120

OHM REMEDIATION SERVICES CORP., Plaintiff, v. HUGHES ENVIRONMENTAL SYSTEMS, INC., ERM Northeast, Inc., Defendants.

No. 96-CV-110.

United States District Court, N.D. New York.

January 22, 1997.

Goodwin, Procter, & Hoar, L.L.P., Boston, MA (Todd R. Cronan, Michael S. Elder, of counsel), for Plaintiff.

Hallenbeck, Lascell, Rochester, NY (David M. Lascell, of counsel), Ernstrom, Dreste, L.L.P., Rochester, NY (Todd Braggins, of counsel), for Defendants.

MEMORANDUM-DECISION & ORDER

McAVOY, Chief Judge.

I. BACKGROUND AND FACTS

This lawsuit arises out of a contract entered into on June 30, 1994, between the plaintiff, OHM Remedial Services, Inc. ("OHM"), a New Jersey Corporation, and co-defendant, Hughes Environmental Systems, Inc. ("Hughes"), a California Corporation. The contract concerned the environmental remediation of manufacturing facility located in Massena, New York ("the Massena Site").

The specific parties to the contract at issue are OHM Remediation Services Corp. ("OHM"), the general contractor, and Hughes Environmental Systems, Inc. ("HESI"), General Motors' ("GM") supervisory contractor and express agent. HESI is a wholly owned subsidiary of Hughes Aircraft Company, which in turn is a wholly owned subsidiary of GM.

The facts and procedural background relating to this case are set forth at length in this Court's Memorandum-Decision and Order filed on August 16, 1996, and need not be repeated herein.

On January 11, 1996, GM filed an action against OHM in the United States District Court for the Eastern District of Michigan ("the Michigan action"). On January 19, 1996, OHM filed this action against Hughes and ERM ("the New York action"). On February 9, 1996, OHM filed a motion to transfer venue of the Michigan action to New York. The Michigan Court granted OHM's motion and venue was transferred to the Northern District of New York. General Motors Corp. v. OHM Remedial Services, Corp., 96-CV-70141 (E.D.Mich.1996).

On February 21, 1996, pursuant to 28 U.S.C. § 1404(a) and Local Rule 7.1, Hughes filed a motion to transfer venue of the New York action to the Eastern District of Michigan. Hughes also moved to stay further proceedings pending the decision of the motion to transfer venue. The Court, inter alia, denied these motions by the August Decision.

Now before the Court are the motions by GM to (1) consolidate the GM v. OHM, 96-CV-1214 action with the OHM v. HESI and ERM, 96-CV-110 action; and (2) to dismiss OHM's third and fourth claims as duplicative of the breach of contract claim.

II. DISCUSSION

A. Motion to Consolidate

GM's motion to consolidate is not opposed. Generally, when actions involving a common question of law or fact are pending before the Court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated; and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay. Id. "The trial court has broad discretion to determine whether consolidation is appropriate." Johnson v. Celotex Corp., 899 F.2d 1281, 1284 (2d Cir.), cert. denied 498 U.S. 920, 111 S.Ct. 297, 112 L.Ed.2d 250 (1990). In the Court's view, consolidation of the present case with OHM v. HESI and ERM, 96-CV-110 is appropriate to promote considerations of judicial economy, see Johnson, 899 F.2d at 1284, or possibly to avoid conflicting results, see Bank of Montreal v. Eagle Assoc., 117 F.R.D. 530, 533 (S.D.N.Y.1987). Accordingly, GM's motion to consolidate is granted.

B. Standard for a Motion to Dismiss

A motion to dismiss for failure to state a claim upon which relief can be granted under Fed.R.Civ.P. 12(b)(6) tests the legal sufficiency of the claim. LaBounty v. Adler, 933 F.2d 121, 123 (2d Cir.1991). The Court's role is not to assess whether a Plaintiff has raised questions of fact or demonstrated an entitlement to a judgment as a matter of law, as in motion pursuant to Fed.R.Civ.P. 56 for summary judgment, but whether the Plaintiff has alleged sufficiently in their Complaint all of the necessary legal elements to state a claim under the law. See Christopher v. Laidlaw Transit, Inc., 899 F.Supp. 1224, 1226 (S.D.N.Y.1995), citing Ricciuti v. New York City Transit Authority, 941 F.2d 119, 124 (2d Cir.1991). "In considering Rule 12 motions to dismiss, the Court must accept the facts appearing on the face of the complaint as true, and consider them along with such reasonable inferences as may be drawn in complainant's favor." Detko v. Blimpies Restaurant, 924 F.Supp. 555, 556 (S.D.N.Y.1996), citing Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). The Court now turns to an examination of the Complaint.

C. Dismissal of Third Claim

The plaintiff OHM's third claim is one for Fraud and Misrepresentation. OHM alleges that HESI "issued [a Request for Proposals ("RFP")] for the Messena project that provided for cost re-estimates after pre-final/final design documents were complete." Complaint at ¶ 50. Prior to signing the contract, OHM relied "on the representations about cost re-estimation in the RFP in preparing its bid and, thereafter, in performing work at the direction of" HESI. Id. at ¶ 51. The ultimate basis for the fraud claim is that HESI "entered into the Contract with OHM ... with the intent to disregard the representations in the REP for re-estimating and fixing costs based on final design documents." Id. at ¶ 53.

GM claims that the above allegations are a recasting of the plaintiff's first claim, breach of contract. See Complaint at ¶ 43 (HESI breach its contract with OHM by "refusing, without justification to recognize the contractual right of OHM to re-estimate the estimated cost."). More specifically, GM claims that OHM has merely alleged that HESI entered into a contract with no intention of performing. That, according to GM, is insufficient to support a fraud claim. See New York Univ. v. Continental Insur. Co., 87 N.Y.2d 308, 639 N.Y.S.2d 283, 662 N.E.2d 763 (1995); Papa's-June Music, Inc. v. McLean, 921 F.Supp. 1154 (S.D.N.Y.1996). In addition, GM claims that, pursuant to Fed.R.Civ.P. 9(b), OHM has failed to allege fraud with the requisite particularity.

OHM counters by arguing "that a claim of fraudulent inducement to contract may be maintained simultaneously with a cause of action for breach of the same contract." Memorandum of Law in Opposition at 4, citing Bibeau v. Ward, 193 A.D.2d 875, 596 N.Y.S.2d 948 (3d Dep't 1993). OHM then distinguishes the cases cited by GM from the instant case by pointing out that, unlike the situation presented in the cases cited by GM, (1) it believes the representations made by HESI to be material misrepresentations; and (2) the fraud claim arises out of the RFP, which preceded the contract at issue, and thus, arises from facts distinct from those alleged in OHM's first claim.

"[I]t is well settled in New York that "mere allegations of breach of contract do not give rise to a claim for fraud or fraudulent inducement." Rolls-Royce Motor Cars, Inc. v. Schudroff, 929 F.Supp. 117, 123 (S.D.N.Y.1996), citing Sudul v. Computer Outsourcing Servs., 868 F.Supp. 59, 61-62 (S.D.N.Y.1994) (citations omitted). However, New York's Court of Appeals has long held that "a promise ... made with a preconceived and undisclosed intention of not performing it, ... constitutes a misrepresentation." Sabo v. Delman, 3 N.Y.2d 155, 164 N.Y.S.2d 714, 716, 143 N.E.2d 906, 908 (1957). As Schudroff points out, it was Sabo that relied "on the slippery distinction between a misrepresentation of present fact and a misrepresentation of future intent," in an attempt to craft a rule that would satisfy the apparent overlap of these two general legal principles. 929 F.Supp. at 123. Under Sabo, it is the former that is actionable as a fraud, and the latter that is not. See Id. However, unlike Schudroff, the Sabo plaintiff "neither asserts a breach of contract nor attempts to enforce any promise made by defendants." 3 N.Y.2d at 159, 164 N.Y.S.2d at 716, 143 N.E.2d at 908. Thus, Sabo does not address the situation before the Court today, or before the Schudroff Court, i.e., whether and under what parameters a plaintiff simultaneously may bring a breach of contract claim and a claim for fraud in the inducement. Schudroff sets out guideposts by noting that "[m]ost courts have refused to permit fraud claims arising from contractual relationships unless (1) the claims are premised on a `a separate duty outside the [contract] or (2) the plaintiff seeks to recover `special damages proximately caused by the alleged false representations that are not recoverable under the contract measure of damages.'" Id. (citations omitted); see also Bridgestone/Firestone, Inc. v. Recovery Credit Services, Inc., 98 F.3d 13, 20 (2d Cir.1996) ("To maintain a claim of fraud ... a plaintiff must either: (i) demonstrate a legal duty separate from the duty to perform under the contract, (citation omitted) or (ii) demonstrate a fraudulent misrepresentation collateral or extraneous to the contract."). Thus, if the fraud claim is based on an agreement not integrated into the contract at issue, such as a collateral oral agreement, the plaintiff may maintain a claim for fraud simultaneously with the breach of contract claim.

Based on the legal principles set forth above, the critical task for the Court is determining to what extent the alleged intention not to re-estimate costs, given that such a term is alleged to be a part of the RFP, is distinct from the allegations undergirding the breach of contract claim. In other words, the Court must assess whether the two claims are sufficiently distinct. The Court finds that there is no distinction such that the OHM may maintain simultaneous claims for breach of contract and fraud in the inducement.

OHM's first claim is for breach of contract. One way in which OHM alleges that HESI breach the contract is by "refusing,...