DocketNumber: C.A. P.B. No. 07-5319
Judges: SILVERSTEIN, J.
Filed Date: 7/22/2008
Status: Precedential
Modified Date: 7/6/2016
In the months following the amendment, Plaintiffs claim that SENESCO "secretly divert[ed] USCS ATB milestone payments — paid by USCS ATB for the explicit purpose of paying subcontractors working on the Tug and the Barge — to meet general overhead and/or to pay subcontractors working at the SENESCO Facility on unrelated projects. . . ." (Comp. ¶ 18.) USCS, however, asserts that financial realities left USCS with no choice but to continue its relationship with the Chace Defendants to ensure completion of *Page 3 construction on the ATB. (Comp. ¶ 19.) In May 2006, the parties entered into what became known as the "May 2006 Agreements", which most notably put the risks and costs for completion of the ATB on USCS ATB and provided for USCS ATB to be paid $21 million. (Comp. ¶¶ 19, 21) The May 2006 Agreements consisted of a series of related agreements to make the necessary changes to the original construction and launch plan for the Barge, as well as the Tug. (Comp. ¶¶ 19-20.) The Agreements included:
*Page 41. An "Implementing Agreement" entered into between the Plaintiffs and Defendants SENESCO, Chace, and Chace Drydock. (Comp. ¶ 21.) The Implementing Agreement most significantly provided for: (1) the termination of the ATB Agreement; (2) transfer of ownership of the ATB to USCS ATB; and (3) responsibility for completion of construction and launch to shift to the Plaintiffs. (Comp. ¶ 21.)
2. A "Site Agreement" acknowledging the necessity of the Chace Drydock to launch the Tug. (Comp. ¶ 22.) The Site Agreement also granted the Plaintiffs access to the SENESCO Facility primarily for the purpose of construction and launching the Tug. (Id.) Finally, the Site Agreement required the Defendants to provide SENESCO with a Tug Launching Protocol detailing how the Tug would be launched utilizing the Drydock. (Id.)
3. A "Consulting Agreement" between USCS ATB and SENESCO obligating SENESCO "to provide USCS ATB with `administrative, operations, and planning services' . . . in connection with, inter alia, the launching of the Tug." (Comp. ¶ 23.)
4. Finally, "Mutual General Release and Agreements" ("Releases") were entered into between the Plaintiffs, SENECSO, Chace, and Chace Drydock. (Comp. ¶ 24.) The Plaintiffs point out in their complaint, however, that the Releases specifically "carved out" and excluded claims by the US Shipping Companies `arising under the [May 2006 Agreements] with respect to undertakings, representations or warranties. . . ." (Id.)
The complaint makes clear that at the heart of the May 2006 agreements was the capacity of the Drydock to launch the Tug and the representations by the Chace Defendants that this capacity existed at the Rhode Island Facility. (Comp. ¶¶ 25-26.)
Following the May 2006 Agreements, the Chace Defendants continued to represent that the Drydock could accommodate the Tug launch. (Comp. ¶ 27.) Despite these representations, however, the Plaintiffs were not provided with the Tug Launching Protocol, which likely would have brought to light the fact that the Drydock was "structurally incapable of launching the Tug." (Comp. ¶¶ 22, 28; see also Site Agreement, Comp. Ex. B. at 1.3.) Plaintiffs thereafter engaged the assistance of Mammoet USA NE, Corp. ("Mammoet"), a third party consultant group brought on to assist in developing a launch proposal. (Comp. ¶¶ 29-30.) Mammoet did provide a launch proposal, which was provided to SENESCO and Chace Drydock, neither of whom objected to the proposal. (Comp. ¶ 30.)
Necessary for final planning were the specifications for structural integrity, carrying capacity, and various engineering details surrounding the Drydock which were requested from SENESCO and Chace Drydock by Mammoet and USCS ATB. (Comp. ¶ 31.) Although both the Site Agreement and the Consulting Agreement required them to *Page 5 do so, the Chace Defendants failed to make this information available. (Comp. ¶ 32.) As a result, USCS ATB engaged engineers and naval architects to inspect the structural integrity of the Drydock, who reported in October of 2006 that it was incapable of supporting the Tug. (Comp. ¶¶ 33-34.) Ultimately, USCS ATB moved the Tug onto a barge for transport to an alternative launch facility. (Comp. ¶ 37.)
The Chace Defendants now move this Court, pursuant to Super. R. Civ. P. Rule 12(b)(6), to dismiss Counts II (fraud) and IV (indemnity) of the Complaint.
A claim for fraud, however, is subject to the greater pleading standards set forth in Super. Ct. R. Civ. P. Rule 9(b) requiring that the circumstances constituting fraud or mistake be stated with particularity. See Robert B. Kent et al., Rhode Island Civil andAppellate Procedure, § 9:2 (2006). Of course, what constitutes particularity depends upon the nature of the case involved and should be "determined in the light of the purpose of the rule to give fair notice to the adverse party and to enable him to prepare his responsive pleading." Id.; see also Grant v. Wilcox,
To establish a common law claim of fraud, "the plaintiff must prove that the defendant `made a false representation intending thereby to induce plaintiff to rely thereon' and that the plaintiff `justifiably relied thereon' to his or her damage." Bitting v. Gray,
Plaintiffs suggest that they have pled fraud with the requisite particularity including time, place, and contents of the false representations. As the complaint alleges, the Implementing Agreement and the Site Agreement each represent the capabilities of *Page 8 the Drydock to safely launch the Tug. (Comp. ¶ 21.) Specifically, the Implementing Agreement stated that "[t]he parties were simultaneously entering into [the May 2006 Agreements], the purposes of which,inter alia, were to enable the US Shipping Partners to complete, launch, and commission the Tug from the SENESCO Facility, with SENESCO's and Chace Drydock's assistance, pursuant to a `Tug Launching Protocol' to be provided by SENESCO." (Comp. ¶ 21.) Similarly, the Site Agreement makes clear the necessary role of the Drydock for the Tug Launch. It stated at section 1.3 that:
[t]he parties agree that upon completion of construction of the Tug, the Tug shall be launched from the Quonset Point facility pursuant to a Tug launching protocol (the "Tug Launching Protocol" in the form to be attached hereto as Exhibit "B" and incorporated herein and to be provided by SENESCO no later than June 7, 2006 and agreed to by the Parties), and shall provide among other things, access to the space, utilities, shipyard facilities, pier and drydock required to successfully complete such launch in accordance with the Tug Launching Protocol.
(Comp. Ex. B, Site Agreement (emphasis added).) In fact, the Plaintiffs' Complaint directs this Court to the numerous Agreements entered into in May of 2006, all of which were predicated on the ability of the Drydock to accommodate the safe launch of the Tug.
Despite reference to the specific Agreements in which the alleged false representations were made, Defendants motion primarily asserts that Plaintiffs have failed to plead with the requisite particularity. Essentially the Chace Defendants argue that Plaintiffs fail to "recite or identify a specific misrepresentation or false statement made by a specific defendant, or to identify the place and contents of any such statement." (Defendant's Memo. at 9.) Moreover, Defendants point out Plaintiffs' use of pre-release facts in an effort to establish their claim for fraud. (Id. at 11.) However, as detailed below, Plaintiffs' Complaint specifies that the alleged fraud is found in the *Page 9 documents referred to as the May 2006 Agreements, not prior negotiations. More specifically, the representations in the Implementing and Site Agreements as quoted above. (Comp. ¶ 11.)
The Plaintiffs allege that the above representations were false because a subsequent determination by USCS engineers showed that the Drydock lacked the structural integrity to safely launch the Tug upon necessary pre-launch inspection. (Comp. ¶ 34.) Such representations, the Plaintiffs assert, should be considered "a manifestation by words or other conduct by one person to another that, under the circumstances, amounts to an assertion not in accordance with the facts." Nisenzon v.Sadowski,
Finally, the Plaintiffs allege in their complaint that the Chace Defendants had knowledge of the falsity of their statements when they were made to induce the Plaintiffs to enter into the May 2006 Agreements. (See Comp. ¶¶ 28, 52.)
USCS ATB reasonably relied to its detriment upon SENESCO's, Chace Drydock's, Chace's, Gardner's and Frost's intentionally false representations that the Drydock was capable of safely launching the Tug. . . . USCS ATB has been damaged by the above referenced fraud in an amount to be determined at trial, and is entitled to recover such damages from SENESCO, Chace Drydock, Chace, Gardner, and Frost.
(Comp. ¶¶ 53-54.) While the Chace Defendants assert that the Plaintiffs failed to avail themselves of the opportunity to have their own engineers inspect the integrity of the Drydock, the Complaint and accompanying exhibits make clear that this burden was not the Plaintiffs' to bear. In fact, our Supreme Court has held that a Plaintiff need not have investigated the accuracy of a representation in order to bring a subsequent action for fraud. See Travers v.Spidell,
The law concerning this issue is well settled in this state. The validity of a release is determined in light of three factors: "(1) the existence of consideration for the release, (2) the experience of the person executing the release, and (3) the question of whether the person executing the release was represented by counsel." Guglielmi v. RhodeIsland Hosp. Trust Fin. Corp.,
A release induced by fraudulent representations is invalid and will not be upheld under the laws of this state. See Smith v. Rhode IslandCo.,
Because the Plaintiffs in stating their claims, pleaded all of the essential elements of fraud with particularity to the satisfaction of Rule 9(b) to create a question of fact upon which a jury would be called on to pass, this Court denies the Defendants Motion to Dismiss Count II of the Complaint.
The resolution of this issue rests on the legal standard applicable to Frost's and Gardner's status as agents for the other named defendants. It has long been settled in Rhode Island that "an agent acting on behalf of a disclosed principal is not personally liable to a third party for acts performed within the scope of his authority." Kennett v.Marquis,
The Plaintiffs have not and do not assert that Frost and Gardner acted outside the scope of their agency relationship. Frost was SENSESCO's signatory on the May 2006 Agreements and Gardner served SENESCO as its primary representative in dealings with the U.S. Shipping Parties. (Comp. ¶ 52.) Rather, Plaintiffs ask this Court to find that as agents, Frost and Gardenr may not escape liability "for tortuous acts [committed] even though they are committed in the course of performing [their] duties." See Plaintiff's Memo. in Obj. to Defendant's PartialMtn. to Dismiss at 25 citing SSJ Enters., LLC v. ICOA, Inc.,
[o]n information and belief, Garnder instructed and directed, on behalf of Chace, the officers and directors of SENESCO and Chace Drydock in the management and operation of the business of SENESCO and Chace Drydock. On information and belief, Gardner issued instructions under which the agreements and acts underlying th[e] complaint were made, including, but not limited to, intentionally making false statements and withholding material information for purposes of fraudulently inducing Plaintiffs into entering into the [May 2006 Agreements]. (Comp. ¶ 7.)
Directed by co-defendants Chace and Gardner, Frost negotiated the agreements underlying th[e] Complaint and *Page 14 intentionally made false statements for the purpose of fraudulently inducing Plaintiffs into entering into the [May 2006 Agreements]. On information and belief, Frost issued instructions under which the agreements and acts underlying th[e] Complaint were made, including, but not limited to, intentionally making false statements and withholding material information for purposes of fraudulently inducing Plaintiffs into entering into the [May 2006 Agreements]. (Comp. ¶ 8.)
Finally, the Court notes that Frost was a signatory to the May 2006 Agreements in his capacity as acting CEO of SENESCO and may be held liable for supplying false information to induce another to enter a business transaction. See Estate of Braswell v. People's CreditUnion,
Taking the Plaintiffs' allegations in the Complaint as true, as this Court must when deciding a Motion to Dismiss, the Court hereby denies Defendant Frost and Defendant Gardner's Motion to Dismiss the claim for fraud against them in their individual capacities.
Here, Plaintiffs allege that Chace personally indemnified SENESCO, Chace Drydock, and the Reinauer Defendants for any and all liability that may arise from a suit brought against them by Plaintiffs. (See Comp. ¶ 11.) The indemnity agreements were negotiated and executed in November of 2006, nearly six months after the May 2006 Agreements were executed. (Comp. ¶ 9.) Chace, therefore, had knowledge of the prior agreements and liabilities to the Plaintiffs and it should come as no surprise that Plaintiffs would seek recovery from the source of that indemnification.
Chace's primary assertion is that Plaintiffs lack standing to bring a claim for indemnity of this nature against Chace. Namely, Chace asks this Court to find that because the Plaintiffs were not named in the indemnity agreement, they cannot state a claim for recovery under that contract. Plaintiffs assert in their Memorandum, however, that "indemnity agreements by their very nature serve to benefit a plaintiff suing the indemnified party." (Plaintiffs' Memo. in Obj. to Defendant'sPartial Mtn. to Dismiss, at 27.) Also, the Chace Defendants were aware of the assertions of breach of the May 2006 Agreements by Plaintiffs well in advance of executing the indemnification contract with SENESCO. (See id.) *Page 16
Section 302 of the Restatement (Second) of Contracts, which has been adopted in this jurisdiction, defines an incidental beneficiary as a "beneficiary who is not an intended beneficiary." Rest. 2dContracts § 302 (2). The Restatement provides the following illustration to distinguish between an intended beneficiary and an incidental beneficiary:
B promises A to pay whatever debts A may incur in a certain undertaking. A incurs in the undertaking debts to C, D and E. If the promise is interpreted as a promise that B will pay C, D and E, they are intended beneficiaries under Subsection (1)(a); if the money is to be paid to A in order that he may be provided with money to pay C, D and E, they are at most incidental beneficiaries.
Id. Therefore, "unless the performance required under the particular contract will directly benefit the would-be intended beneficiary, he is at best an incidental beneficiary." Public Svc. Co. of N.H. v. HudsonLight and Power Dep't and Peabody Municipal Light Plant,
This Court finds that Plaintiffs have failed to establish themselves as third party beneficiaries under the indemnity agreement entered into by Defendant Chace. While *Page 17
this Court has not been provided a copy of the indemnification agreement, neither party claims that Plaintiffs were named beneficiaries under the terms of the contract. Plaintiffs merely assert that because potential liability to the plaintiffs existed at the time the indemnification agreement was created, their indemnification claim should come as no surprise to Chace. (See Comp. ¶¶ 11, 60.) An indemnitor's mere awareness, as stated above, however, is insufficient to establish third-party beneficiary status. See Forcier,
The Court here finds that Plaintiffs' rights under the indemnification agreement, if any, are those of a mere incidental beneficiary. As such, Plaintiffs are not able to bring a direct action against Chace as indemnitor. See Rest. 2d Contracts § 302 citing Hurley v. Lano Int'l,Inc.,
The Court will, therefore, grant Defendant Chace's Motion to Dismiss Count IV of the Plaintiffs' Complaint.
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