Schmees v. hc1.com, Inc.
| Decision Date | 12 February 2020 |
| Docket Number | No. 1:18-cv-03606-JPH-DLP,1:18-cv-03606-JPH-DLP |
| Parties | RACHAEL SCHMEES f/k/a RACHAEL BLACK, Plaintiff, v. HC1.COM, INC., Defendant. |
| Court | U.S. District Court — Southern District of Indiana |
Rachael Schmees alleges that her former employer, hc1.com, Inc., recruited her with assurances of the company's financial security and her career success, only to end her employment after one week by eliminating her position. She brings claims of fraud, fraudulent inducement, promissory estoppel, and intentional infliction of emotional distress. hc1 has filed a motion to dismiss these claims. Dkt. [30]. For the reasons that follow, that motion is GRANTED in part and DENIED in part. Ms. Schmees's claims for promissory estoppel and intentional infliction of emotional distress are DISMISSED but her other claims will proceed.
Because hc1 has moved for dismissal under Rule 12(b)(6), the Court accepts and recites "the well-pleaded facts in the complaint as true." McCauley v. City of Chicago, 671 F.3d 611, 616 (7th Cir. 2011).
In the fall of 2017, hc1 recruited Ms. Schmees to be a National Account Manager. Dkt. 24 at 2. hc1 assured her that the company was financially secure and dedicated to its employees' success, telling her that its "current investors elected to expand their capital investments," that it "had closed a round of funding 'in excess of many millions of dollars,'" and that its "sales team was on target to meet aggressive fourth quarter quota expectations." Id. at 2-5.
After hc1 made an employment offer, Ms. Schmees's then-employer, Tiger Text, attempted to retain her by offering increased compensation and benefits. Id. at 4-5. After more negotiation and discussion, Ms. Schmees accepted hc1's job offer. Id. at 5.
Ms. Schmees started working at hc1 on December 11, 2017. Id. at 6. One week later, hc1 told her that her position was being eliminated. Id. hc1 knew as early as December 8, 2017, that the position was in peril but did not tell Ms. Schmees. Id. Ms. Schmees could not return to her previous job. Id.
Ms. Schmees's amended complaint brings four claims against hc1: (1) fraud, (2) fraudulent inducement, (3) promissory estoppel, and (4) intentional infliction of emotional distress. Dkt. 24. hc1 has moved to dismiss these claims, dkt. 30, and Ms. Schmees has moved for leave to file a second amended complaint, dkt. 41.
Defendants may move under Federal Rule of Civil Procedure 12(b)(6) to dismiss claims for "failure to state a claim upon which relief may be granted." Fed. R. Civ. P. 12(b)(6). To survive a Rule 12(b)(6) motion to dismiss, a complaint must "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A facially plausible claim is one that allows "the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.
Under that standard, a plaintiff must provide "some specific facts" that "raise a right to relief above the speculative level." McCauley, 671 F.3d at 616 (quoting Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009)). "The degree of specificity required is not easily quantified, but 'the plaintiff must give enough details about the subject-matter of the case to present a story that holds together.'" Id. (quoting Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010)). Applying the procedural pleading requirements to the applicable substantive law is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id.
When ruling on a 12(b)(6) motion, the Court will "accept the well-pleaded facts in the complaint as true," but will not defer to "legal conclusions and conclusory allegations merely reciting the elements of the claim." Id. Indianasubstantive law governs this case. See Webber v. Butner, 923 F.3d 479, 480-81 (7th Cir. 2019).
hc1 has moved to dismiss all of Ms. Schmees's claims. The Court addresses each in turn, applying Indiana law by doing its "best to predict how the Indiana Supreme Court would decide" the issues. Webber, 923 F.3d at 482.
Fraud requires a material misrepresentation of past or existing facts that is false and was made with knowledge or reckless ignorance of its falsity, and that was relied on to the detriment of the complaining party. First Nat'l Bank v. Acra, 462 N.E.2d 1345, 1348 (Ind. Ct. App. 1984). Fraud must be pleaded with "particularity," meaning that the plaintiff "ordinarily must describe the 'who, what, when, where, and how' of the fraud." Pirelli Armstrong Tire Corp. Retiree Med. Benefits Tr. v. Walgreen Co., 631 F.3d 436, 441-42 (7th Cir. 2011) (citing Fed. R. Civ. P. 9(b)). Expressions of opinion cannot support a fraud claim; a misrepresentation of material fact is required. Am. United Life Ins. v. Douglas, 808 N.E.2d 690, 703 (Ind. Ct. App. 2004).
hc1 argues that the statements identified by Ms. Schmees were merely opinion or about future conduct and thus cannot support a fraud claim. Dkt. 30 at 5-8. It also argues that Ms. Schmees had no right to rely on the statements. Id. at 8-9. Ms. Schmees contends that she has allegedmisrepresentations of material fact about, among other things, hc1's financial condition. Dkt. 34 at 3-7.
These alleged misrepresentations include that (1) its "current investors elected to expand their capital investments," (2) it "had closed a round of funding 'in excess of many millions of dollars,'" and (3) its "sales team was on target to meet aggressive fourth quarter quota expectations." Dkt. 24 at 2, 4, 10.1 These are not statements about the future, but statements of fact about the present or recent past. See Captain & Co. v. Stenberg, 505 N.E.2d 88, 96 (Ind. Ct. App. 1987) (); Douglas, 808 N.E.2d at 703. These statements are also not vague or qualified "seller's 'puff'" or "trade talk" that is mere opinion. Whiteco Props., Inc. v. Thielbar, 467 N.E.2d 433, 437 (Ind. Ct. App. 1984). Instead, they are "objective statement[s] of fact, not subject to qualification." Id.
hc1 is correct that not all the statements Ms. Schmees relies on can support her fraud claim. For example, the statement that the position would be a "total layup with virtually no professional risk but limitless upside potential," dkt. 24 at 4, "must be interpreted" as a promise of future performance or as opinion, Stenberg, 505 N.E.2d at 96. But enough of hc1's alleged statements are fairly read to allege material misrepresentation of past or existing facts to support a plausible fraud claim. See id.hc1 next argues that Ms. Schmees's fraud claim fails because she had no "right to rely on any subsequent statements suggesting that her employment was assured to last longer than the week it did." Dkt. 30 at 9. Ms. Schmees responds that hc1 misrepresented details about its funding and sales that were specifically within hc1's knowledge. Dkt. 34 at 6-7.
The right of reliance is designed to protect those without access to information "from the wiles and stratagems of the artful and cunning." Plymale v. Upright, 419 N.E.2d 756, 762 (Ind. Ct. App. 1981). Accordingly, when parties are on equal footing, a person must rely on "common sense and judgment" to discern the truth. Id. at 761-62. But when the party making the promises has greater knowledge or expertise, the other party has the right to rely on those statements. Ehle v. Ehle, 737 N.E.2d 429, 435-36 (Ind. Ct. App. 2000); Scott v. Bodor, Inc., 571 N.E.2d 313, 322 (Ind. Ct. App. 1991).
That is the case here. Ms. Schmees was not privy to the details of hc1's funding and sales. So when company executives made specific representations about those things, it was reasonable for her to accept and rely on them. See Parke County v. Ropak, Inc., 526 N.E.2d 732, 737 (Ind. Ct. App. 1988) ().
Relying on Baberstine v. New York Blower Co., 625 N.E.2d 1308 (Ind. Ct. App. 1993), hc1 argues that Ms. Schmees had no right to rely on these statements about hc1's funding and sales because hc1's letter offering her a job made clear she was being offered at-will employment. Dkt. 35 at 4-5. InBaberstine, however, the alleged misrepresentations "were in direct contravention of the express terms" of an agreement that the plaintiff signed. 625 N.E.2d at 1316. Here, nothing in Ms. Schmees's offer letter contradicted hc1's statements about its funding and sales, so the letter did not give her the opportunity to learn the truth. See dkt. 30-1; Plymale, 419 N.E.2d at 761-62. Moreover, Ms. Schmees has alleged that her employment with hc1 was the result of fraud. An at-will employment agreement that exists only because of fraud cannot be used to exculpate the employer from that fraud. See Dawson v. Hummer, 649 N.E.2d 653, 660 (Ind. Ct. App. 1995) (); Prall v. Ind. Nat'l Bank, 627 N.E.2d 1374, 1378 (Ind. Ct. App. 1994) (). hc1 therefore has not shown at this stage that Ms. Schmees had no right of reliance.
hc1's motion to dismiss Ms. Schmees's fraud claim is denied.
The parties argue that fraudulent inducement is the same as fraud, except that it also requires showing intent to deceive.2 Dkt. 30 at 10; dkt. 34 at 3 (both citing Tru-Cal, Inc. v. Conrad Kacsik Instr. Sys., Inc., 905 N.E.2d 40, 44-45 (Ind. Ct. App. 2009)). In its motion to dismiss, hc1 argues that Ms. Schmees's fraudulent inducement claim should be dismissed because of the"same deficiencies plaguing" her fraud claim. Dkt. 30...
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