United States District Court, W.D. Texas, Austin Division
HUNT CONSTRUCTION GROUP, INC.
COBB MECHANICAL CONTRACTORS, INC., and LIBERTY MUTUAL INS. CO.
REPORT AND RECOMMENDATION OF THE UNITED STATES
W. AUSTIN UNITED STATES MAGISTRATE JUDGE
HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE
the Court are Defendant Liberty Mutual Insurance
Company's Motion to Dismiss Count VII of Hunt's
Amended Complaint, or Alternatively for More Definite
Statement (Dkt. No. 72); Hunt's Opposition (Dkt. No. 76);
and Liberty's Reply (Dkt. No. 77). The District Court
referred these Motions to the undersigned Magistrate Judge
for report and recommendation pursuant to 28 U.S.C.
§636(b) and Rule 1(c) of Appendix C of the Local Rules.
Construction Group, Inc. is the general contractor for the
Fairmont Austin Hotel construction project. On July 20, 2015,
Hunt entered into a subcontract with Defendant Cobb
Mechanical Contractors for the project's plumbing,
piping, and heating-ventilation-air conditioning scopes of
work, for the fixed sum of $30, 938, 190. Pursuant to the
Subcontract, Cobb obtained a performance bond from Liberty
Mutual Insurance Co. in the principal sum of $30, 938, 190,
with Hunt as the obligee. The purpose of the performance bond
was to insure completion of the Cobb's scope of work in
the event Cobb defaulted. Starting In July 2016, Hunt issued
a series of default notices to Cobb, and on November 18,
2016, Hunt terminated the subcontract with respect to the
podium portion of the hotel only. At the same time, Hunt
notified Liberty of the termination and stated that it
intended to arrange for another subcontractor to perform the
remainder of Cobb's obligations on the podium and to
correct Cobb's defective work on the podium. Blaming Hunt
for all delays, on January 31, 2017, Liberty formally denied
Hunt's claim under the performance bond.
March 7, 2017, Hunt filed suit, asserting a breach of
contract claim against Cobb, and also a breach of contract
claim against Liberty for its refusal to perform under the
bond. Dkt. No. 1. Both Cobb and Liberty Mutual answered and
counterclaimed. Dkt. Nos. 12 & 13. On February 2, 2018,
Hunt filed an Amended Complaint. Dkt. No. 66. The Amended
Complaint included new claims of breach of contract and
breach of fiduciary duty against Cobb under the Professional
Services Agreement, and a fraudulent inducement claim against
Cobb. In the instant motion, in addition to challenging the
particularity of the fraud allegations, Liberty contends the
fraud claim should be dismissed because: (1) it fails to
state a claim because it is merely re-labeling the breach of
contract claims as a fraud cause of action; (2) the economic
loss rule bars the fraud claim; and (3) Cobb's partial
performance negates the fraud claim. Hunt responds that: (1)
it has stated a valid fraudulent inducement claim based upon
specific representations within the Subcontract upon which it
relied in entering into the agreement; (2) Hunt's fraud
claim is not duplicative of its breach of contract claim and
not barred by the economic loss rule; and (3) Liberty does
not have standing to move to dismiss the claim, because the
claim only names Cobb, not Liberty.
MOTION TO DISMISS STANDARD
deciding a Rule 12(b)(6) motion to dismiss for failure to
state a claim, “[t]he court accepts all well-pleaded
facts as true, viewing them in the light most favorable to
the [nonmovant].” In re Katrina Canal Breaches
Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal
quotation marks omitted), cert. denied, 552 U.S.
1182 (2008). While a complaint attacked by a Rule 12(b)(6)
motion does not need detailed factual allegations in order to
avoid dismissal, the plaintiff's factual allegations
“must be enough to raise a right to relief above the
speculative level.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007). A plaintiff's
obligation “requires more than labels and conclusions,
and a formulaic recitation of the elements of a cause of
action will not do.” Id.
Rule 9(b) imposes a heightened pleading requirement for a
fraud claim and requires a party that alleges fraud to
“state with particularity the circumstances
constituting fraud.” Fed.R.Civ.P. 9(b). “To plead
fraud adequately, the plaintiff must ‘specify the
statements contended to be fraudulent, identify the speaker,
state when and where the statements were made, and explain
why the statements were fraudulent.'” Sullivan
v. Leor Energy, LLC, 600 F.3d 542, 551 (5th Cir. 2010).
“Rule 9(b) requires, at a minimum, that a plaintiff set
forth the who, what, when, where, and how of the alleged
fraud.” U.S. ex rel. Steury v. Cardinal Health,
Inc., 625 F.3d 262, 266 (5th Cir. 2010) (citations and
internal quotation marks omitted); see also U.S. ex rel.
Willard v. Humana Health Plan of Texas, 336 F.3d 375,
384 (5th Cir. 2003). However, “[m]alice, intent,
knowledge, and other conditions of a person's mind may be
alleged generally.” Fed.R.Civ.P. 9(b).
Liberty's Standing to Raise this Issue
that Liberty is seeking to dismiss a claim that has not been
brought against it, but rather a claim brought against
co-defendant Hobb, Hunt challenges Liberty's standing to
file this motion. Liberty responds that the argument is
baseless because the Court has the power to dismiss a fraud
claim on its own motion, relying on Spring Street Apts.
Waco, LLC v. Philadelphia Indemnity Ins. Co., 2017 WL
524428 (W.D. Tex. April 5, 2017). Liberty is correct that a
federal district court can, on its own initiative and
unprompted by the parties, consider the sufficiency of a
complaint and dismiss a complaint sua sponte for
failure to state a claim upon which relief can be granted.
See Carroll v. Fort James Corp., 470 F.3d 1171, 1177
(5th Cir. 2006); Guthrie v. Tifco Indus., 941 F.2d
374, 379 (5th Cir. 1991). The important difference here,
however, is that the Court has not chosen to raise the issue
itself, but instead the issue has been raised by Liberty.
federal court's jurisdiction is limited to adjudication
of “cases” and “controversies.” U.S.
Const. Art. III; Flast v. Cohen, 392 U.S. 83, 95
(1968). A court has no subject matter jurisdiction over a
non-justiciable issue. See DeFunis v. Odegaard, 416
U.S. 312, 316 (1974). Further, for a party to have standing
to sue, the dispute must be real, not hypothetical, and the
plaintiff must be personally affected. KVUE, Inc. v.
Moore, 709 F.2d 922, 928 (5th Cir. 1983). Though the
Court clearly has subject matter jurisdiction over this case
as a whole, that does not mean it would a wise exercise of
its inherent power to take up a motion to dismiss not raised
by the party the claim has been made against. Indeed, the
fact that Cobb has not even joined Liberty's motion seems
telling. Regardless, the Court does not believe that simply
because it could raise this issue sua
sponte means that it would be wise to do so. For this
reason, then, the undersigned believes Liberty's motion
to dismiss should be denied. Though this alone would be an
adequate basis on which to deny the motion, the Court will
take up the merits of the motion, as the motion fails on that
basis as well.
Whether the Amended Complaint States a ...