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Hunt Construction Group, Inc. v. Cobb Mechanical Contractors, Inc.

United States District Court, W.D. Texas, Austin Division

June 26, 2018

HUNT CONSTRUCTION GROUP, INC.
v.
COBB MECHANICAL CONTRACTORS, INC., and LIBERTY MUTUAL INS. CO.

          REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE

          ANDREW W. AUSTIN UNITED STATES MAGISTRATE JUDGE

         TO: THE HONORABLE LEE YEAKEL UNITED STATES DISTRICT JUDGE

         Before 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.

         I. FACTUAL BACKGROUND

         Hunt 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.

         On 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.

         II. MOTION TO DISMISS STANDARD

         In 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.

         Additionally, 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).

         III. ANALYSIS

         A. Liberty's Standing to Raise this Issue

         Noting 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.

         A 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.

         B. Whether the Amended Complaint States a ...


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