United States District Court, D. Alaska
ORDER RE MOTION TO DISMISS
Sharon
L. Gleason UNITED STATES DISTRICT JUDGE
Before
the Court at Docket 103 is Plaintiff and Counter Defendant
NordAq Energy, Inc.'s Motion to Dismiss First Amended
Counterclaim of Paul L. Devine.[1] The motion has been fully
briefed.[2] Oral argument on the motion was held on
November 1, 2017.[3] For the following reasons the motion will
be granted with leave to amend to the extent set forth
herein.
BACKGROUND
For
purposes of this motion to dismiss, the facts as relevant to
the motion are briefly summarized based primarily on Paul
Devine's pleadings:
Paul
Devine served as Chief Financial Officer (“CFO”)
of NordAq from January 2011 to August 2013 and as Chief
Executive Officer (“CEO”) of NordAq from
September 2013 to July 2015.[4] Mr. Devine served as a member of
NordAq's Board of Directors from April 2011 to June
2015.[5] Mr. Devine was tasked with raising capital
for NordAq in order for NordAq to pursue oil and gas drilling
opportunities.[6] Mr. Devine's employment agreement with
NordAq required NordAq to indemnify Mr. Devine for any legal
fees arising out of a lawsuit related to his employment with
NordAq.[7] The employment agreement also included a
termination clause that Mr. Devine alleges NordAq
violated.[8] Shortly after Mr. Devine was hired, NordAq
granted Mr. Devine an incentive compensation package, which
required NordAq to pay Mr. Devine 2.5 percent of all funds
raised by Mr. Devine for NordAq.[9]
In the
summer of 2014, Mr. Devine, on behalf of NordAq, entered into
an agreement (“Subscription Agreement”) with
Nuoxin, an Anguilla limited liability company.[10] The
Subscription Agreement stated that Nuoxin would invest $60
million into NordAq in two installments: $20 million
(“Tranche A”) was to be paid immediately and $40
million (“Tranche B”) was to be paid by October
31, 2014.[11]
After
paying the initial $20 million, Nuoxin, through its agent
Doris Cheng, obtained seats on NordAq's Board of
Directors and became NordAq's largest individual
shareholder.[12] Mr. Devine maintains that Nuoxin and Ms.
Cheng assured Mr. Devine several times that Nuoxin would
provide the second installment of $40 million when
due.[13]But Nuoxin defaulted on the Subscription
Agreement and failed to provide the second $40 million
installment.[14] Despite the default, Mr. Devine raised
additional capital for NordAq from other
investors.[15] Mr. Devine alleges he was forced to
resign in 2016 as a result of NordAq's
misrepresentations.[16]
On
November 18, 2016, NordAq initiated this
action.[17] Its Second Amended Complaint against Mr.
Devine alleges claims for conversion, breach of fiduciary
duty, and fiduciary fraud.[18] NordAq alleges that Mr. Devine
improperly used NordAq's assets for his personal use and
improperly disbursed NordAq monies to various individuals who
were in no way associated with NordAq.[19]
NordAq
also filed complaints against Mr. Devine's friends in
Texas and Alabama, alleging they received property from Mr.
Devine that was purchased with misappropriated NordAq
funds.[20] Mr. Devine is not a named party in
either case.
On
April 19, 2017, Mr. Devine filed an answer to NordAq's
Second Amended Complaint.[21] On May 10, 2017, Mr. Devine
filed an amended answer and asserted counterclaims against
NordAq for fraud, misrepresentation, breach of contract and
third party beneficiary, tortious interference with contract,
intentional interference with prospective economic advantage,
RICO, conspiracy and acting in concert, conversion, and
punitive damages.[22] On August 31, 2017, Mr. Devine filed a
Second Amended Answer with First Amended Counterclaims
(“FAC”). The FAC again pleads all the
counterclaims against NordAq as alleged in the amended answer
along with an additional claim labelled “discovery
rule, ” which asserts that any applicable statute of
limitations for Mr. Devine's claims was tolled until his
“effective wrongful termination.”[23]
On
September 14, 2017, NordAq filed its Motion to Dismiss. It
seeks to dismiss all of Mr. Devine's counterclaims, apart
from the breach of contract claim, pursuant to Federal Rule
of Civil Procedure 12(b)(6).[24]
LEGAL
STANDARDS
NordAq
seeks dismissal of most of Mr. Devine's counterclaims for
failure to state a claim. Under Rule 8(a), a complaint must
contain a “short and plain statement of a claim showing
that the [plaintiff] is entitled to
relief.”[25] If a complaint fails to do this, the
defendant may move to dismiss it under Rule
12(b)(6).[26]
“To
survive a 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.'”[27] Iqbal does not require a
litigant to prove his case in his pleading, but it requires
the litigant to “state ‘enough fact[s] to raise a
reasonable expectation that discovery will reveal evidence of
[the misconduct alleged].'”[28] The pleading
must contain “enough facts to state a claim to relief
that is plausible on its face.”[29] A claim is
plausible on its face “when the plaintiff pleads
factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.”[30] Thus, there must be “more than a
sheer possibility that a defendant has acted
unlawfully.”[31] When considering a motion to dismiss, a
court “accept[s] factual allegations in the complaint
as true and construe[s] the pleadings in the light most
favorable to the nonmoving party.”[32]
For a
Rule 12(b)(6) motion, a court considers only the pleadings
and documents incorporated into the pleadings by reference,
as well as matters on which a court may take judicial
notice.[33] “Even if a document is not
attached to a complaint, if may be incorporated by reference
into a complaint if the plaintiff refers extensively to the
document or the document forms the basis of the
plaintiff's claim.”[34] Moreover, a court can
“consider certain materials-documents attached to the
complaint, documents incorporated by reference in the
complaint, or matters of judicial notice-without converting
the motion to dismiss into a motion for summary
judgment.”[35]
When a
motion to dismiss for failure to state a claim is granted, a
court “should freely give leave when justice so
requires.”[36] But leave to amend is properly denied as
to those claims for which amendment would be
futile.[37]
Under
Federal Rule of Civil Procedure 9(b), “a party must
state with particularity the circumstances constituting
fraud.” Rule 9(b) also applies to claims for fraudulent
misrepresentation.[38] “While statements of the time,
place, and nature of the alleged fraudulent activities are
sufficient, mere conclusory allegations of fraud are
insufficient.”[39]“Any averments which do not meet
the standard should be ‘disregarded' or
‘stripped' from the claim[.]”[40]
The
Court has diversity jurisdiction over NordAq's claims
against Mr. Devine.[41]Pursuant to 28 U.S.C. § 1367(a),
this Court has supplemental jurisdiction over “all
other claims that are so related to claims in this action
within such original jurisdiction[.]” The Court applies
federal procedural law; as discussed further herein, Alaska
substantive law applies to all claims except the federal RICO
claim.[42]
DISCUSSION
Mr.
Devine's FAC alleges the following ten counterclaims
against NordAq: fraud; misrepresentation; breach of contract
and third party beneficiary; tortious interference with
contract; intentional interference with prospective economic
advantage; RICO; conspiracy and acting in concert;
conversion; punitive damages; and discovery
rule.[43]
1.
Fraud and Intentional Misrepresentation
Mr.
Devine asserts tort counterclaims against NordAq for fraud
and misrepresentation.[44] NordAq maintains that Mr. Devine
failed to plead these claims with particularity as required
by Rule 9(b).[45]
Under
Federal Rule of Civil Procedure 9(b), “a party must
state with particularity the circumstances constituting fraud
or mistake. Malice, intent, knowledge, and other conditions
of a person's mind may be alleged generally.”
Allegations of fraudulent misrepresentation must be
“accompanied by ‘the who, what, when, where, and
how' of the misconduct charged.”[46]
Under
Alaska law, fraudulent misrepresentation consists of
“(1) a misrepresentation of fact or intention, (2) made
fraudulently (i.e. with scienter), (3) for the purpose of
inducing another to act in reliance, (4) with justifiable
reliance by the recipient, (5) causing
loss.”[47] Mr. Devine asserts that NordAq
misrepresented that “[he] would receive a raise in his
salary once the transaction with Nuoxin was closed in 2014,
” and that “Mr. Devine's resignation was
required in 2016 . . . that resulted in the effective
wrongful termination of Mr. Devine.”[48]
Mr.
Devine has not identified who stated that he would receive a
raise, and when that statement was made. Nor does he explain
the terms of his employment contract with NordAq, the
circumstances of his resignation, or precisely who made what
fraudulent misrepresentations to him, and when. Accordingly,
Mr. Devine's fraud and misrepresentation claims against
NordAq as to his raise and resignation fail to state a claim
with particularity and are dismissed.
Mr.
Devine also alleges NordAq induced him to enter into an
employment contract by representing that “[NordAq]
would indemnify him for any litigation arising from his
employment” and by representing that “[Mr.
Devine] was entitled to 2.5% of the monies he was able to
raise for NordAq.”[49] But Mr. Devine does not argue that
these representations were false when made. At oral argument,
counsel for Mr. Devine stated “[a]t the time [John Kidd
told Mr. Devine he would receive a 2.5 percent incentive
compensation], Mr. Devine, I think rightfully, believed that
it was a representation not a misrepresentation, took the
job, did the work, and then didn't get paid from NordAq.
Now, retroactively, after forced out Mr. Devine and Mr. Kidd,
they are saying that representation itself was
invalid.”[50] However, to be actionable, a statement
that is alleged to be a misrepresentation must be
misrepresented when made.[51] Mr. Devine has failed to
state a claim for fraudulent misrepresentation because he has
not alleged that Mr. Kidd made false representations to him
when he offered him the 2.5 percent incentive compensation.
On this basis alone, dismissal of the fraud and
misrepresentation claims would be warranted.
So as
to provide some guidance in the event Mr. Devine seeks to
amend to assert these claims, the Court also addresses the
scope of the fraudulent misrepresentation claims under Alaska
law in the context of employment disputes. “Only where
the duty breached is one imposed by law, such as traditional
tort law duty furthering social policy, may an action between
contracting parties sound in tort.”[52] [E]very
contract breach cannot be turned into a
tort.”[53] “[P]romises set forth in a
contract must be enforced by an action on that
contract.”[54]
Mr.
Devine asserts that his case is similar to Jarvis v.
Ensminger.[55] In Jarvis, Jarvis entered into
an employment agreement with Ensminger, which included a
performance incentive conditioned on Jarvis meeting certain
sales benchmarks.[56] When Ensminger failed to pay the
performance incentive, Jarvis sued. The Alaska Supreme Court
held there was no breach of contract claim because it was
undisputed that Jarvis had not met the specified sales
benchmarks. But Jarvis had also alleged intentional
misrepresentation; specifically, he alleged that Ensminger
had made three misrepresentations about the basic terms of
the contract that had induced Jarvis to sign it. The court
held that the misrepresentation claim could proceed because
it was based on alleged “tortious conduct separate and
apart from [an alleged] failure to fulfill . . . contractual
obligations.”[57] Yet at the same time, the Court
recognized “a violation of a duty arising from
contract-such as the duty to pay wages under an employment or
tender payment for goods-does not give rise to a tort
claim.”[58]
This
case is unlike Jarvis because Mr. Devine has not
alleged claims that he relied on misrepresentations knowingly
made by Mr. Kidd acting on behalf of NordAq that induced Mr.
Devine to enter into an agreement with NordAq. Indeed, Mr.
Devine has expressly disavowed any intent to pursue such
claims.[59] Rather, he appears to be alleging a
breach of the “duty to pay wages under an employment
contract”; a claim which may only proceed in contract.
Accordingly, Mr. Devine's fraud and misrepresentation
claims against NordAq that relate to Mr. Devine's
employment contract with NordAq are dismissed, with leave to
amend only to allege a claim where an independent tort duty
can be factually demonstrated. Mr. Devine's tort claims
against NordAq seeking indemnification, the 2.5 percent
incentive pay, or enforcement of any other terms in the
employment contract are dismissed with prejudice.
Mr.
Devine also asserts that additional fraudulent
misrepresentations were made by Ms. Cheng and David Pfeiffer.
He claims that Ms. Cheng “acted as an agent on behalf
of both NordAq and Nuoxin” in stating that the
“second funding was positive and would be
successful.”[60] A principal can be liable for the torts
of its agents.[61] However, “for an agency
relationship to exist, the agent must have [(1)] ‘a
power to alter the legal relations between the principal and
third persons' . . . . [and, (2)] [t]he principal, in
turn, must have ‘the right to control the conduct of
the agent with respect to matters entrusted to
him.'”[62]
In this
case, Mr. Devine is alleging that Ms. Cheng, acting in her
capacity as a majority shareholder, was an agent of
NordAq.[63] However, Mr. Devine has not alleged any
facts demonstrating that Ms. Cheng had the power to alter the
legal relations between NordAq and Mr. Devine; nor has he
alleged any facts demonstrating that NordAq had control over
Ms. Cheng's alleged statements. Accordingly, a
principal-agent relationship has not been adequately alleged
to make NordAq liable for the alleged torts of Ms. Cheng. Mr.
Devine's claim for fraudulent misrepresentation against
NordAq as it relates to Ms. Cheng's alleged conduct is
dismissed without prejudice, with leave to amend to allege
facts that would constitute an agency relationship. In
addition, any such claim must clearly set forth the
circumstances of such alleged misrepresentations with
particularity including the who, what, when, where, and how.
Mr.
Devine's fraudulent misrepresentation claim against
NordAq based on Mr. Pfeiffer's alleged statements in 2016
or later is without merit. Mr. Devine alleges that Mr.
Pfeiffer, an employee of NordAq, made fraudulent
misrepresentations as an agent of NordAq. Specifically, he
asserts Mr. Pfeiffer falsely represented that “he would
carry out the best interests of Clearview” and that he
“and NordAq were concerned for Mr. Devine's well
being in the latter part of 2016 and early
2017.”[64] Mr. Devine asserts these statements were
“made in order to induce Mr. Devine into believing that
NordAq would not try to take advantage of his debilitated
state, ” and were made “to capitalize on Mr.
Devine's health crisis by maliciously filing baseless
lawsuits against Mr. Devine and his
interests.”[65]
Mr.
Devine has not pleaded any facts showing that Mr. Pfeiffer,
as a NordAq employee, had “the power to alter the legal
relationships” between Mr. Devine and NordAq. Moreover,
Mr. Devine has not pleaded any facts to demonstrate how he
relied on Mr. Pfeiffer's alleged statements, because
according to Mr. Devine, he was forced to resign in 2016 and
was no longer working for NordAq when at least some of these
statements were allegedly made. Accordingly, Mr. Devine's
fraudulent misrepresentation claim against NordAq as it
pertains to statements allegedly made by Mr. Pfeiffer is
dismissed without prejudice with leave to amend to allege
facts that demonstrate an agency relationship as well as
reliance together with all other requisite elements for such
a claim.
2.
Conversion
Mr.
Devine also alleges a counterclaim against NordAq for
conversion. He asserts “Mr. Devine had a possessory
interest in his stock holdings of NordAq, in his agreed-to
salary, and in his agreed-to incentive compensation . . .
[and] Counter Defendants intentionally interfered with Mr.
Devine's right to possess that
property.”[66] Mr. Devine also alleges that NordAq
committed conversion by failing to pay Mr. Devine more than
$1 million in incentive compensation and failing to pay more
than $1 million in salary as a result of his wrongful
termination.[67]
To
establish a claim for conversion under Alaska law, a
plaintiff must establish “(1) that []he had a
possessory interest in the property; (2) that the defendant
interfered with the plaintiff's right to possess the
property; (3) that the defendant intended to interfere with
plaintiff's possession; and (4) that the defendant's
act was the legal cause of the plaintiff's loss of the
property.”[68]
Mr.
Devine's conversion claims all appear to arise directly
from NordAq's alleged breach of the employment
contract.[69] However, “every contract breach
cannot be turned into a tort” due to the
“consequential damages that would flow from [such] tort
claims and from [the related] contract claims [that]
significantly overlap.”[70] As stated above, Mr. Devine
cannot bring a tort claim against NordAq for its alleged
breach of his employment contract with NordAq; rather, he
must plead a sufficient factual basis to demonstrate the
existence of an independent duty.[71] Accordingly, Mr.
Devine's conversion claim is dismissed. To the extent it
is based on Mr. Devine's contract with NordAq, it is
dismissed with prejudice.
3.
Third Party Beneficiary
Mr.
Devine's third counterclaim against NordAq includes a
claim that he is a third party beneficiary of the
Subscription Agreement between NordAq and
Nuoxin.[72] Under Alaska law, a court looks to the
objective motives or intent of the parties to determine
whether a party is an intended third-party
beneficiary.[73] A court “will recognize a
third-party right to enforce a contract upon a showing that
the parties to the contract intended that at least one
purpose of the contract was to benefit the third
party.”[74] In Smallwood, the Alaska
Supreme Court explained that it is the intent of the promisee
that is key.[75]
In this
case, Mr. Devine alleges that the Subscription Agreement
between NordAq, the promisee, and Nuoxin, the promisor,
“expressly stipulated . . . that Mr. Devine would be
entitled to 2.5% of the monies paid by
Nuoxin[.]”[76] Mr. Devine further alleges in his FAC
that “at least one purpose of the contract was to
benefit Mr. Devine.”[77] Although Mr. Devine alleges
one of the purposes of the agreement was to benefit him, the
agreement does not contain any such indication. The only
portion of the agreement that mentions Mr. Devine's 2.5
percent compensation is in a schedule attached to the actual
agreement; it is not found in the body of the
agreement.[78] No other provision in the Subscription
Agreement supports the allegation that NordAq intended to
benefit Mr. Devine by entering into the Subscription
Agreement with Nuoxin. Mr. Devine has not adequately pleaded
facts that would plausibly support a claim that he was a
third party beneficiary of the Subscription
Agreement.[79] Accordingly, Mr. Devine's third
party beneficiary claim is dismissed.[80]
4.
Tortious Interference with Contract and Intentional
Interference with Prospective Economic
Advantage
Mr.
Devine alleges counterclaims for tortious interference with a
contract and intentional interference with prospective
economic advantage. Both claims allege that Nuoxin, Ms.
Cheng, and Mr. Pfeiffer interfered with Mr. Devine's
relationship and contract with NordAq.[81] Mr.
Devine's theory of liability as to NordAq is that NordAq
is vicariously liable for the interference made by Nuoxin,
Ms. Cheng, and Mr. Pfeiffer.[82]
To state a claim for tortious interference with a contract
under Alaska law, Mr. Devine must plead “(1) an
existing contract between the plaintiff and a third party;
(2) defendant's knowledge of the contract and intent to
induce a breach; (3) breach; (4) wrongful conduct of the
defendant causing the breach; (5) damages; and (6) absence of
privilege or justification for the defendant's
conduct.”[83] Mr. Devine has pleaded that he had a
contract with NordAq; however, he has not pleaded that there
was any contract that existed between him and either Nuoxin,
Ms. Cheng, or Mr. Pfeiffer. Moreover, he concedes in his
opposition that the “tortious interference claims are
primarily against Nuoxin, Cheng, and
Pfeiffer.”[84] The Court is unaware of any Alaska
authority that would permit NordAq to be held vicariously
liable for any alleged interference by Nuoxin, Ms. Cheng, or
Mr. Pfeiffer with NordAq's contract with Mr. Devine. In
light of the foregoing, Mr. Devine's claim for tortious
interference with a contract against NordAq is dismissed. To
the extent it is based on Mr. Devine's contract with
NordAq, it is dismissed with prejudice.[85]
Mr.
Devine has also failed to state a valid claim against NordAq
for tortious interference with a prospective business
opportunity under Alaska law. To establish a claim for
tortious interference with a prospective business
opportunity, Mr. Devine must show “(1) an existing
prospective business relationship between it and a third
party; (2) defendant's knowledge of the relationship and
intent to prevent its fruition; (3) failure of the
prospective relationship to culminate in pecuniary benefit to
the plaintiff; (4) conduct of the defendant interfering with
the prospective relationship; (5) damages caused by the
defendant; and (6) absence of privilege or justification for
the defendant's conduct.”[86]
Mr.
Devine's FAC alleges that “NordAq, Cheng, Nuoxin
and Pfeiffer knew about [Mr. Devine's relationship with
NordAq and its shareholders] and intended to prevent Mr.
Devine from growing these relationships, and intentionally
disrupted them.”[87] However, Mr. Devine does not identify
any specific “prospective business relationship”
or lost deal between him and an identifiable third party.
Instead, he generally alleges that NordAq caused reputational
harm to him among NordAq's shareholders.[88] Accordingly,
Mr. Devine's counterclaim for tortious interference with
a prospective business opportunity is dismissed. In light of
Mr. Devine's acknowledgement at oral argument that he had
no facts that could support a specific interference claim
that would be maintained under Alaska law, the dismissal of
this claim is with prejudice without leave to amend.
5.
RICO
Mr.
Devine next asserts a counterclaim against NordAq under the
Racketeer Influenced and Corrupt Organizations Act
(“RICO”).[89] A civil RICO claim consists of the
following: “(1) conduct (2) of an enterprise (3)
through a pattern (4) of racketeering activity (known as
‘predicate acts') (5) causing injury to
plaintiff's ‘business or
property.'”[90]“Racketeering activity”
includes mail fraud, which occurs “whenever a person,
‘having devised or intending to devise any scheme or
artifice to defraud, ' uses the mail ‘for the
purpose of executing such scheme or
artifice.'”[91]
Mr.
Devine alleges Nuoxin, Ms. Cheng, and Mr. Pfeiffer “are
using NordAq to run a litigation smear campaign against
Devine by wrongfully suing him and/or his interests in
Alaska, Texas, and Alabama, in order to financially punish
Mr. Devine, wrongfully seek recovery of the compensation he
properly earned while employed by NordAq, and increase the
time and expense he is incurring to protect his name and his
interests from baseless lawsuits.”[92] Mr. Devine
also alleges that Mr. Pfeiffer attempted to prevent him from
defending himself in this case by signing misleading
affidavits in support of a default judgment against
him.[93] Mr. Devine alleges that “Counter
Defendants have used mail and wire fraud to perpetuate their
racketeering scheme.”[94]
Although
the Ninth Circuit has not directly ruled on whether filing
documents with a court can constitute a RICO claim, other
federal courts have held that these litigation activities
cannot constitute RICO violations under 18 U.S.C. § 1962
(a)-(c).[95] One district court reasoned:
Plaintiffs' interpretation of RICO . . . would result in
the inundation of federal courts with civil RICO actions that
could potentially subsume all other state and federal
litigation in an endless cycle where any . . . litigant
immediately sues opponents for RICO violations. . . .
[L]itigants might hesitate to avail themselves of the courts
and available legal remedies or be unable to find
representation to help vindicate their rights. Moreover,
allowing [such cases] . . . would inappropriately by pass
[sic] the state tribunal. . . .[96]
The
Court agrees with this reasoning. Moreover, Mr. Devine is not
a named party to either the Texas or Alabama
lawsuits.[97] Accordingly, Mr. Devine's RICO claim
against NordAq is dismissed. Mr. Devine may attempt to plead
a viable RICO claim against NordAq, but it must not be based
on the use of the mail or wire to submit filings to a court,
which claim is dismissed with prejudice. 1332(a)(1) and 28
U.S.C. § 1332(a)(2). Docket 23 at 3-4, ¶ 6.
6.
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