Ram Iron & Metal, Inc. v. Exeon Processors LLC
| Decision Date | 16 May 2023 |
| Docket Number | 1:22-CV-178-HAB-SLC |
| Parties | RAM IRON & METAL, INC. Plaintiff, v. EXEON PROCESSORS, LLC., Defendant. |
| Court | U.S. District Court — Northern District of Indiana |
Plaintiff RAM Iron & Metal, Inc. (“RAM”) believes Defendant, Exeon Processors, LLC., (“Exeon”) breached their contract, converted its property, and engaged in fraud when Exeon shorted RAM over $228,000 for copper wire. RAM filed suit in state court asserting all three causes of action and seeking treble damages for conversion and theft under Indiana Crime Victim's Relief, Ind. Code §35-43-4-2 and 3. After removing the case based on diversity, Exeon moved to dismiss RAM's Complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim and Fed.R.Civ.P. 9(b). (ECF No. 4). The motion is fully briefed (ECF Nos. 5, 15, and 16) and ripe for consideration.[1]For the following reasons, Exeon's Motion will be GRANTED in part and DENIED in part. RAM will be GRANTED leave to file an amended complaint.
When deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the Court accepts as true all factual allegations in the complaint and draws all inferences in favor of the plaintiff. Bielanski v. Cty. of Kane, 550 F.3d 632, 633 (7th Cir. 2008). The allegations, however, must “give the defendant fair notice of what the...claim is and the grounds upon which it rests,” and the “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Bell Atl Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations and quotation marks omitted). Stated differently, the complaint must include “enough facts to state a claim to relief that is plausible on its face.” Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009) (internal citation and quotation marks omitted). To be facially plausible, the complaint must allow “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S. at 556).
Under Federal Rule of Civil Procedure 9(b), a plaintiff alleging fraud must state with particularity the circumstances constituting fraud. AnchorBank, FSB v. Hofer, 649 F.3d 610, 615 (7th Cir. 2011). This requires that the plaintiff describe “the ‘who, what, when, where, and how' of the fraud.” Id. (quoting Pirelli Armstrong Tire Corp. Riteree Med. Benefits Tr. v. Walgreen Co., 631 F.3d 436, 441-42 (7th Cir. 2011)). If the plaintiff's allegations fail to meet this heightened pleading standard, the court will dismiss claims of fraud. Cincinnati Life Ins. Co. v. Beyrer, 722 F.3d 939, 950 (7th Cir. 2013).
RAM is a Canadian family-owned scrap metal recycler. (Compl. ECF No. 3, ¶¶s 1, 4). As a scrap metal recycler, RAM's business involves processing end of life products and recovering recyclable metal materials so that they can be reintroduced as raw materials to produce new goods. (Id. ¶4). Exeon is a scrap metal dealer that buys, processes, and sells various types of metal, including copper. (Id. ¶5).
In early 2021, Exeon was in the market to purchase copper wire from RAM. (Compl. ¶6). RAM shipped a sample bale of 4000 pounds of copper wire to Exeon who, in turn, processed the wire by removing leftover, non-copper scrap metal. (Id. ¶7). Exeon's processing revealed a “recovery rate” of approximately 90%, meaning that Exeon roughly recovered 90% of the shipped copper. (Id. ¶8). Recovery rates are important because they dictate how RAM is paid. Typical recovery rates for the type of copper wire Exeon sought to purchase are between 80% and 94%. (Id. ¶¶s 8, 9).
Following the sample shipment, the parties agreed that RAM would sell specified amounts of material to Exeon at a specified price. The parties also agreed that RAM would be paid for a recovery rate of 90%. (Compl. ¶¶s 10, 11). This agreement is memorialized in purchase orders attached to the Complaint. (Compl. Ex. A). Operating under their agreement, RAM shipped five loads of copper wire to Exeon and invoiced Exeon $676,921.00 based on the pricing formula and the 90% recovery rate. As Exeon processed the copper, it assured RAM that the recovery rate was 88-90%. When processing and settlement took longer than normal in the industry, Exeon's general manager explained that its production was postponed and upgrades were being made to Exeon's system to process the copper material. RAM was unaware that Exeon's existing system could not process the copper it had shipped.
When Exeon finally issued payment to RAM, the payment was $448,907, not the amount RAM had billed. (Compl. ¶17). Without further explanation, Exeon attributed the $228,014 shortage to an average recovery rate of 60%. (Id. ¶¶s 18-19). RAM's Complaint seeks recovery of the shortage plus treble damages, attorneys' fees and costs.
The Complaint asserts claims for fraud (Count 1), breach of contract (Count 2), conversion (Count 3), and damages for violating the Indiana Crime Victim's Relief Act (Count 4). Exeon moves to dismiss all counts. The Court will address each count individually,
Exeon moves to dismiss the fraud count because RAM failed to plead fraud with particularity under Fed.R.Civ.P. 9(b) and the allegations, even if adequate under Rule 9, fail to state a claim under Fed.R.Civ.P. 12(b)(6). Exeon asserts that the allegations do not put it on fair notice of the fraudulent conduct and it simply rehashes its breach of contract allegations.
The basic consideration underlying Rule 9(b) requires “fair notice” to a defendant of the alleged fraudulent conduct. Vicom, Inc. v. Harbridge Merch. Servs, Inc., 20 F.3d 771, 777-78 (7th Cir. 1994). But here, as Exeon points out the allegations are lacking. The Complaint, as pled, asserts that someone at Exeon, at some unspecified time, made assurances to someone at RAM that the recovery rate was 88-90%, but later paid based on a recovery rate of 60%. The Complaint does not identify the individual at Exeon who made the representations or to whom at RAM the representations were made. The specific statements made are not identified nor is the date or method of communicating the statements identified. Failure to include this information does not provide fair notice to a defendant of the allegedly fraudulent conduct. Shea v. General Motors LLC., 2021 WL 4804171 (N.D. Ind. Oct. 14, 2021) (). Thus, on this basis alone the Court could grant Exeon's Motion to Dismiss the fraud claim.
But the pleading problems go even further. RAM asserts that it has pled the elements of both actual and constructive fraud under Indiana law and that is all it need do. Yet, this Court's review of the allegations fails to confirm RAM's position. To properly plead actual fraud, a plaintiff must assert facts showing: (1) a material representation of a past or existing fact that (2) was false, (3) was made with knowledge or reckless ignorance of its falsity, (4) was made with the intent to deceive, (5) was rightfully relied on by the complaining party, and (6) proximately caused injury to the complaining party. Sample v. Kinser Ins. Agency, Inc., 700 N.E.2d 802, 805 (Ind.Ct.App. 1998). While intent may be pled generally, Wigod v. Wells Fargo Bank, N.A., 673 F.3d 547, 569 (7th Cir. 2012), the Complaint here does not allege intent at all. Nor does it contain allegations of falsity or that the speaker (whoever that might have been) made the allegedly fraudulent representations with knowledge of falsity and with an intent to deceive RAM.
Moreover, under Indiana law, Plaintiff may not “repackage” an ordinary breach of contract claim into a fraud action. Tobin v. Ruman, 819 N.E.2d 78, 86 (Ind.Ct.App. 2004) (evidence of alleged misrepresentations surrounding contract terms “merely establishes” breach of contract, but plaintiff “offered no evidence establishing that [defendants'] actions constitute the separate and independent tort of fraud”). Only if the plaintiff proves that the conduct of the breaching party independently establishes the elements of a common law tort may the plaintiff recover for fraud. Id. “Thus, a claimant who brings both a breach of contract and a fraud claim must plead facts establishing that (1) the breaching party committed the separate and independent tort of fraud; and (2) the fraud resulted in injury distinct from that resulting from the breach.” Id.; Epperly v. Johnson, 734 N.E.2d 1066, 1073 (Ind.Ct.App. 2000).
As RAM has pled its claim, the conduct alleged for the breach of contract is the failure to pay a 90% recovery rate. This same conduct underlies the fraud allegations: that someone at Exeon at some unspecified time made assurances to someone at RAM that the recovery rate was 88-90% but later paid based on a recovery rate of 60%. Aside from the earlier noted failure to plead fraud with specificity, the conduct supporting the fraud count and the breach of contract count appears to be the same. Likewise, the Complaint does not plead facts amounting to a distinct injury from the injury asserted in the breach of contract claim. Plaintiff's claim for actual fraud then, is DISMISSED.
As for any claim of constructive fraud, this appears to be an afterthought by RAM asserted for the first time in its response to the motion to dismiss. To state a claim for constructive fraud, a defendant must allege facts plausibly giving rise to: (1) a duty owing by the party to be charged to the complaining party due to their relationship; (2) violation of that duty by making deceptive...
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