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Hardie-Tynes Co. Inc. v. SKF USA Inc.

United States District Court, N.D. Alabama, Southern Division

May 16, 2018

HARDIE-TYNES, CO., INC., Plaintiff,
v.
SKF USA, INC., Defendant.

          MEMORANDUM OPINION AND ORDER

          VIRGINIA EMERSON HOPKINS UNITED STATES DISTRICT JUDGE

         I. Introduction

         Plaintiff Hardie-Tynes, Co., Inc. (“Hardie-Tynes) initiated this commercial action against SKF USA, Inc. (“SKF”) on August 29, 2016. (Doc. 1). Invoking diversity jurisdiction pursuant to 28 U.S.C. § 1332, Hardie-Tynes has alleged that SKF supplied deficient bearings for the Matlacha Bridge Replacement Project in Lee County, Florida (the “Project”). (Doc. 1 at 1; id. ¶ 1). On March 16, 2017, Hardie-Tynes sought leave to amend its complaint to include a fraudulent suppression count. (Doc. 28). After reviewing a round of briefing by the parties, the Court denied Hardie-Tynes's Motion for Leave To Amend Complaint (the “Amend Motion”) on the grounds of futility on June 5, 2017. (See generally Doc. 39).

         In compliance with the Court's 10-day deadline set out in Appendix III to the Uniform Initial Order (doc. 11 at 26 § F), on June 15, 2017, Hardie-Tynes filed a Motion for Reconsideration (the “Reconsideration Motion”). (Doc. 40). Hardie-Tynes also requested oral argument. (Doc. 41).

         On June 23, 2017, SKF opposed the Reconsideration Motion on the basis that Hardie-Tynes did not meet the discretionary standard on reconsideration. (Doc. 42). The Court then set the Reconsideration Motion for a hearing and a deadline for SKF to respond to the merits of Hardie-Tynes's arguments. (Doc. 43).

         SKF filed its merits-based opposition on July 17, 2017. (Doc. 44). Hardie-Tynes followed with its reply on July 31, 2017. (Doc. 45). On August 4, 2017, Hardie-Tynes filed a Notice of Corrected Proposed Amended Complaint. (Doc. 46).

         The Court held a hearing on the Reconsideration Motion on August 17, 2017. (Doc. 48 at 1); (see also Doc. 49 (transcript of proceedings held on August 17, 2017)). Consistent with that hearing, the Court granted the Reconsideration Motion in that Hardie-Tynes was given the opportunity to file an amended verified fraud count with “factual allegations consistent both with the pleading requirements arising under Rules 8 and 9 of the Federal Rules of Civil Procedure and the substantive elements arising under APJI 18.05 and 18.08.” (Doc. 9 at 2-3).

         Hardie-Tynes filed an amended complaint with verified fraudulent suppression allegations on August 31, 2017. (Doc. 50). SKF followed with a Motion To Dismiss Plaintiff's Amended Complaint (Verified as to Count Four) (doc. 53) (the “Dismissal Motion”) on September 25, 2107. The parties have briefed the Dismissal Motion.[1](Docs. 54, 55). As analyzed below, the Dismissal Motion is GRANTED IN PART and otherwise is DENIED.[2]

         II. Standards

         A. Rule 12(b)(6)

         A Rule 12(b)(6) motion attacks the legal sufficiency of the complaint. See Fed. R. Civ. P. 12(b)(6) (“[A] party may assert the following defenses by motion: (6) failure to state a claim upon which relief can be granted[.]”). The Federal Rules of Civil Procedure require only that the complaint provide “‘a short and plain statement of the claim' that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957) (footnote omitted) (quoting Fed.R.Civ.P. 8(a)(2)), abrogated by Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556, 127 S.Ct. 1955, 1965, 167 L.Ed.2d 929 (2007); see also Fed. R. Civ. P. 8(a) (setting forth general pleading requirements for a complaint including providing “a short and plain statement of the claim showing that the pleader is entitled to relief”).

         While a plaintiff must provide the grounds of his entitlement to relief, Rule 8 does not mandate the inclusion of “detailed factual allegations” within a complaint. Twombly, 550 U.S. at 555, 127 S.Ct. at 1964 (quoting Conley, 355 U.S. at 47, 78 S.Ct. at 103). However, at the same time, “it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). “[O]nce a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint.” Twombly, 550 U.S. at 563, 127 S.Ct. at 1969.

         “[A] court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.” Iqbal, 556 U.S. at 679, 129 S.Ct. at 1950. “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Id. “When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id. (emphasis added). “Under Twombly's construction of Rule 8 . . . [a plaintiff's] complaint [must] ‘nudge[] [any] claims' . . . ‘across the line from conceivable to plausible.' Ibid.” Iqbal, 556 U.S. at 680, 129 S.Ct. at 1950-51.

         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.” Iqbal, 556 U.S. at 678, 129 S.Ct. at 1949. “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. (quoting Twombly, 550 U.S. at 556, 127 S.Ct. at 1965).

         B. Rule 9(b)

         Fed. R. Civ. P. 9(b) states:

(b) Fraud or Mistake; Conditions of Mind. In alleging fraud or mistake, 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.

Id.; see also Ala. R. Civ. P. 9(b) (similar).

         The Eleventh Circuit has synthesized the following framework for applying the Rule 9(b) standard:

“The particularity rule serves an important purpose in fraud actions by alerting defendants to the ‘precise misconduct with which they are charged' and protecting defendants ‘against spurious charges of immoral and fraudulent behavior.'” Durham v. Bus. Management Assocs., 847 F.2d 1505, 1511 (11th Cir. 1988) (quoting Seville Indus. Mach. Corp. v. Southmost Mach. Corp., 742 F.2d 786, 791 (3d Cir. 1984)).[3] The application of Rule 9(b), however, “must not abrogate the concept of notice pleading.” Id. Rule 9(b) is satisfied if the complaint sets forth “(1) precisely what statements were made in what documents or oral representations or what omissions were made, and (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) same, and (3) the content of such statements and the manner in which they misled the plaintiff, and (4) what the defendants obtained as a consequence of the fraud.” Brooks v. Blue Cross and Blue Shield of Florida, Inc., 116 F.3d 1364, 1371 (11th Cir. 1997) (internal quotation omitted).

Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001).

         Relying upon pre-Bonner Fifth Circuit precedent, [4] the Supreme Court of Alabama has explained how a litigant pleads fraud with sufficient particularity:

Rule 9(b), ARCP, provides that when fraud is alleged the circumstances constituting the fraud shall be stated with particularity. This does not require every element to be stated with particularity, but the pleader must use more than generalized or conclusionary statements setting out the fraud. The pleader must state the time, the place, the contents or substance of the false representations, the fact misrepresented, and an identification of what has been obtained. See Committee Comments to Rule 9(b), ARCP.

Robinson v. Allstate Ins. Co., 399 So.2d 288, 289-290 (Ala. 1981) (emphasis added) (citing Rubens v. Ellis, 202 F.2d 415 (5th Cir. 1953)); see also Rubens, 202 F.2d at 417 (“The form of these allegations is wholly insufficient under Civil Rule 9(b), which requires that in all averments of fraud or mistake, the circumstances constituting such fraud or mistake shall be stated with particularity.”) (emphasis added); id. (describing plaintiff's collateral attack of a prior judgment on the ground of fraud as “only a categorical assertion” that inadequately “amounts only to a conclusion”).

         III. Analysis

         A. Preliminary Considerations

         Hardie-Tynes's amended complaint adds a fourth claim against SKF-one for fraudulent suppression. (Doc. 50 at 9-27 ¶¶ 31-90). As previously recognized by this Court, the elements of fraudulent suppression under Alabama law are “(1) that [SKF] had a duty to disclose the existing material fact; (2) that [SKF] suppressed this material fact; (3) that [SKF]'s suppression of this fact induced [Hardie-Tynes] to act or to refrain from acting; and (4) that [Hardie-Tynes] suffered actual damage as a proximate result.”[5] State Farm Fire & Cas. Co. v. Owen, 729 So.2d 834, 837 (Ala.1998) (citing Booker v. United American Ins. Co., 700 So.2d 1333, 1339 (Ala. 1997)). Additionally, the Code of Alabama clarifies that:

Suppression of a material fact which the party is under an obligation to communicate constitutes fraud. The obligation to communicate may arise from the confidential relations of the parties or from the particular circumstances of the case.

Ala. Code § 6-5-102.[6]

         Further, “[t]he question whether a party had a duty to disclose is a question of law to be determined by the trial court.” Barnett v. Funding Plus of Am., Inc., 740 So.2d 1069, 1074 (Ala. 1999) (citing Owen, 729 So.2d at 838). In deciding this threshold issue, this Court must consider:

(1) the relationship of the parties; (2) the relative knowledge of the parties; (3) the value of the particular fact; (4) the plaintiff's opportunity to ascertain the fact; (5) the customs of the trade; and (6) other relevant circumstances.

Owen, 729 So.2d at 842-43; see also Sirmon v. Wyndham Vacation Resorts, Inc., 922 F.Supp.2d 1261, 1285 & n.19 (N.D. Ala. 2013) (same) (citing Owen, 729 So.2d at 842-43).

         When previously determining that Hardie-Tynes's prior fraudulent suppression count was futile, the Court's ruling was based entirely upon Bama Budweiser of Montgomery, Inc. v. Anheuser-Busch, Inc., 611 So.2d 238 (Ala. 1992) (relied upon by SKF). As the Supreme Court of Alabama stated in Bama, “[w]hen the parties to a transaction deal with each other at arm's length [and] with no confidential relationship, no obligation to disclose arises when information is not requested.” 611 So.2d at 246. This Court then found that the allegations of Hardie-Tynes's formerly proposed amended complaint reflected an arm's length relationship between it and SKF and no plausible confidential relationship. (Doc. 39 at 6-7). The Court further concluded that Hardie-Tynes's fraudulent suppression claim lacked an allegation that amounted to a question and, as a result, no plausible duty to disclose existed under the fraudulent suppression framework utilized in Bama. (Doc. 39 at 7). As a result, the Court denied Hardie-Tynes's Amend Motion as futile.

         However, in Aliant Bank v. Four Star Investments, Inc., No. 1150822, 2017 WL 1787935 (Ala. May 5, 2017), the Alabama Supreme Court more recently clarified that Bama is not the exclusive way in which a fraudulent suppression claim can plausibly arise between two commercial entities. In finding a triable fraudulent suppression claim in the commercial setting presented there, the Aliant court explained:

Aliant has alleged that Smith[7] represented to it that the bond proceeds would be used to develop 270 additional lots in Twelve Oaks while allegedly knowing that he and/or his companies would actually receive the majority of the bond proceeds for work that had already been performed in association with the development of the first 80 lots. In CNH America, LLC v. Ligon Capital, LLC, 160 So.3d 1195, 1202-03 (Ala. 2013), we explained that “ ‘once a party elects to speak, he or she assumes a duty not to suppress or conceal those facts that materially qualify the facts already stated' ” (quoting Freightliner, 932 So.2d at 895). See also First Alabama Bank of Montgomery, N.A. v. First State Ins. Co., 899 F.2d 1045, 1056 (11th Cir. 1990) (“Finally, even if one is not under a duty to speak, if he decides to do so, ‘he must make a full and fair disclosure, ' without concealing any facts within his knowledge.” (quoting Ellis v. Zuck, 409 F.Supp. 1151, 1158 (N.D. Ala. 1976), and citing Jackson Co. v. Faulkner, 55 Ala.App. 354, 315 So.2d 591 (1975))). Thus, once Smith represented how the bond proceeds would be used, he had a duty to make a full disclosure as to how those proceeds would be used. Aliant has submitted evidence indicating that Smith failed to fulfill that duty and instead concealed the truth about how the bond proceeds would be used, thus inducing Aliant to execute the mortgagee-special-assessment acknowledgment and resulting in subsequent injury to Aliant. Accordingly, the summary judgment entered on the fraudulent-suppression claims asserted against Smith and Twelve Oaks Properties is due to be reversed.

Aliant, 2017 WL 1787935, at *25.

         In light of Aliant, the Court agrees with Hardie-Tynes that “Alabama law clearly recognizes the plausibility of a fraudulent suppression claim in the context of commercial transactions when[, ] after a party elects to speak, that party conceals facts that would materially qualify the prior statement.” (Doc. 40 at 7); see also Pennsylvania Nat. Mut. Cas. Ins. Co. v. St. Catherine of Siena Par., 790 F.3d 1173, 1182 (11th Cir. 2015) (“As a federal court sitting in diversity, we are bound to follow ‘the latest statement of state law by the state supreme court.'” (quoting World Harvest Church, Inc. v. Guideone Mut. Ins. Co., 586 F.3d 950, 957 (11th Cir. 2009))). Importantly, one of the primary authorities that causes this Court to reach this conclusion is a case which was not only mentioned by Aliant, but which SKF has relied upon to support its position-CNH Am., LLC v. Ligon Capital, LLC, 160 So.3d 1195 (Ala. 2013). (Doc. 44 at 7).

         CNH involved a commercial dispute between a parent company and its subsidiary hydraulic-cylinder supplier and a purchaser. 160 So.3d at 1198. The plaintiffs brought suit against the purchaser asserting claims of breach of contract, fraudulent misrepresentation, and fraudulent suppression. Id. The jury returned a verdict for the plaintiffs on fraudulent suppression and the purchaser appealed. Id.

         The “gravamen of [the plaintiffs'] fraudulent-suppression claims [wa]s that [the purchaser] decided in approximately September 2007 to replace [the subsidiary supplier] of cylinders and then fraudulently suppressed that fact from [the supplier] for approximately eight months, inducing [the plaintiffs] to take actions and expend funds in an impossible attempt to foster an ongoing relationship between [the subsidiary supplier] and [the purchaser].” 160 So.3d at 1201. On appeal, the purchaser denied both that it had decided to end its relationship with the subsidiary supplier in 2007 “and that it had any duty to disclose to [the plaintiffs] that it was terminating its relationship with [the subsidiary supplier] before it did so in May 2008.” Id. The Supreme Court of Alabama ultimately rejected the purchaser's duty-to-disclose contention, as discussed in more detail below. See CNH, 160 So.3d at 1201-03 (analyzing duty-to-disclose element).

         As SKF previously argued in pertinent part concerning the import of CNH:

[T]he Aliant court relied upon a prior decision in CNH America, LLC v. Ligon Capital, LLC, 160 So.3d 1195, 1201-1202 (Ala. 2013), wherein the Alabama Supreme Court held that “in a commercial transaction involving arm's length negotiations, the parties have no general obligation to disclose any specific information to the other, but each has an affirmative duty to respond truthfully and accurately to direct questions from the other.” In that case, in response to a question from the plaintiff, the defendant provided information that was materially inaccurate. Id. at 1202. Given that the Aliant Court did not recede from the rulings in Bama Budweiser and Norman, and given that the Aliant Court relied upon CNH America, it must be presumed that the Aliant borrower's alleged statement was made in response to a request/direct question from the lender.
Unlike Aliant and CNH America, there is no allegation in the proposed amended complaint that the allegedly misleading language within the February 2011 email was provided by SKF in response to and as a specific answer to a question posed by Plaintiff. In fact, Plaintiff makes no allegation about the circumstances under which the information was provided by SKF.

(Doc. 44 at 7 (emphasis added)).

         Thus, SKF suggested that CNH reaffirms the Court's previous Bama-based ruling that, in the absence of a direct inquiry from a commercial plaintiff, no cognizable duty for a commercial defendant to disclose information arises. SKF's position, however, is directly undermined by CNH's complete analysis, in which the court upheld the jury verdict in favor of the plaintiff on the challenged fraudulent suppression claims. More particularly, while the CNH court did discuss how a sufficiently specific question can create a duty to disclose in a commercial dispute, 160 So.3d at 1202, importantly, its analysis of that element did not end there.

Moreover, even if we were to conclude that Campbell's questions were not reasonably specific and direct, this Court also stated in Freightliner that “once a party elects to speak, he or she assumes a duty not to suppress or conceal those facts that materially qualify the facts already stated.” 932 So.2d at 895. Ligon and HTI argue that once Selvan told Campbell that “CNH needed [HTI] in the short term and long term, we are committed, ” he and CNH assumed the duty to make a full and fair disclosure without concealing other relevant facts within his knowledge. See First Alabama Bank of Montgomery, N.A. v. First State Ins. Co., 899 F.2d 1045, 1056 (11th Cir. 1990) (“Finally, even if one is not under a duty to speak, if he decides to do so, ‘he must make a full and fair disclosure, ' without concealing any facts within his knowledge.” (quoting Ellis v. Zuck, 409 F.Supp. 1151, 1158 (N.D. Ala. 1976), and citing Jackson Co. v. Faulkner, 55 Ala.App. 354, 315 So.2d 591 (1975))). There can be no dispute but that the fact that CNH had already decided to replace HTI materially qualified Selvan's statement that CNH was “committed” to HTI. “The duty imposed on the speaking party is to disclose those facts that are material to the ones already stated so as to make them truthful.” Freightliner, 932 So.2d at 895. See also Ellis, 409 F.Supp. at 1158 (“So it is that if a franchisee raises a question the franchisor must avoid half-truths.”). Thus, even if a duty to disclose was not otherwise created by Campbell's questions, that duty was certainly assumed by CNH when Selvan and Canali voluntarily spoke of CNH's long-term commitment to HTI.

CNH, 160 So.2d at 1202-03 (emphasis added).

         Thus, CNH makes it clear what Bama does not, [8] that a duty to disclose can arise between two commercial parties under Alabama law even in the absence of a specific question when a commercial defendant affirmatively speaks, but fails to disclose facts that materially qualify that statement. Id.; see also Aliant, 2017 WL 1787935, at *25 (citing to CNH as well as other authorities and determining in a commercial bond setting that “once [the defendant] represented how the bond proceeds would be used, he had a duty to make a full disclosure as to how those proceeds would be used”); cf. also Freightliner, L.L.C. v. Whatley Contract Carriers, L.L.C., 932 So.2d 883, 895 (Ala. 2005) (recognizing in a commercial case that “once a party elects to speak, he or she assumes a duty not to suppress or conceal those facts that materially qualify the facts already stated”); id. (clarifying that such “party does not assume a duty to divulge all information that may be or may become relevant to the other party” but rather that “the speaking party is to disclose those facts that are material to the ones already stated so as to make them truthful”) (emphasis in original); First Alabama Bank of Montgomery, N.A. v. First State Ins. Co., 899 F.2d 1045, 1056 (11th Cir. 1990) (“Finally, even if one is not under a duty to speak, if he decides to do so, ‘he must make a full and fair disclosure, ' without concealing any facts within his knowledge.” (quoting Ellis v. Zuck, 409 F.Supp. 1151, 1158 (N.D. Ala. 1976)), declined to follow on other grounds as stated in U.S. Fid. & Guar. Co. v. Bass, 619 F.2d 1057, 1060 n.7 (5th Cir. 1980)).

         SKF's prior efforts to discount the meaning of Aliant (by reading into that opinion a predicate question as triggering the duty to disclose even though no prior inquiry was ever mentioned in the opinion, 2017 WL 1787935, at *25) and to persuade this Court that only a question can plausibly create a duty to disclose under the circumstances of this commercial case are unavailing in light of the full scope of CNH upon which Aliant relies. Additionally, SKF made no attempt to distinguish Freightliner, an Alabama Supreme Court decision which predates Aliant by over a decade and CNH by nine years and which similarly indicates that a duty to disclose can arise when a commercial party elects to speak, [9] even though Hardie- Tynes cited to Freightliner for that proposition in its Reconsideration Motion. (Doc. 40 at 6 n.1).

         Most recently, SKF concedes that a duty to disclose can arise when a commercial party elects to speak, but withholds material information concerning the topic of discussion:

It is also not disputed that, under Alabama law, a duty to disclose information may arise when an entity elects to speak on a certain subject. However, as set forth above, the instances of SKF electing to speak identified within the Amended Complaint are not different at all from the instances identified in the prior proposed Amended Complaint which this Court found to not state a cause of action for fraudulent suppression.

(Doc. 53 at 9-10 (emphasis added)). In reply, SKF mentions the election-to-speak theory in the introductory section. (Doc. 55 at 2). However, SKF offers no substantive analysis of that theory's viability in light of Hardie-Tynes's amended complaint. (See id. at 2-6 (limiting analysis to fraudulent suppression premised upon a request for information)).

         Thus, in sharp contrast to SKF's prior assertion that “the only avenue by which [Hardie-Tynes] could even endeavor to establish a ‘duty to disclose' would be if the allegedly suppressed information was ‘requested'” (Doc. 54 at 6 (emphasis added) (some internal quotation marks omitted) (quoting Doc. 44 at 4)), SKF has reversed its position. SKF now agrees with Hardie-Tynes that Alabama law recognizes that a duty to disclose may arise when a commercial party elects to speak. Nonetheless, without pointing to any analysis, SKF contends that Hardie-Tynes has no plausible fraudulent suppression claim because of the Court's denial of the Amend Motion. More specifically, SKF urges that this Court has already found Hardie-Tynes's electing-to-speak allegations to be inadequate and that nothing contained in the amended complaint is meaningfully different from what this Court previously analyzed. The problem with SKF's position is that this Court has not yet assessed the plausibility of SKF's allegations under an election-to-speak theory.

         In sum, after studying the parties' arguments made and authorities cited in their various briefs, the Court concludes that its prior Bama-based futility ruling in denying the Amend Motion was incomplete. More specifically, the Court did not account for Alabama's recognition that a plausible duty to disclose can arise between two commercial parties (even in the absence of a direct question) when one elects to speak without disclosing facts that would materially alter the meaning of that prior statement. ...


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