12(b)(6) Motions and Fraud Pleading Rules – A Case Note

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Wojcik v. Interarch, Inc., 2013 WL 5904996 (N.D.Ill. 2013), provides a good summary of the factual allegations required to allege fraud and civil conspiracy claims.

The plaintiffs sued a national franchisor and its site development consultant for fraud and other business torts when their Saladworks franchise failed.  Defendants moved to dismiss all claims.

Held: motion granted in part; denied in part.

Reasons:  The Court first recited some key Federal court pleadings and motions rules:

A 12(b)(6) motion tests whether the complaint state a claim on which relief can be granted;

–  FRCP 8 notice pleading requires a complaint to contain sufficient factual matter that states a claim that is plausible on its face;

 a plaintiff doesn’t have to plead facts in his complaint that anticipate possible affirmative defenses  (FRCP 8(c)(1);

– FRCP 9(b) requires heightened pleading specificity for fraud and civil conspiracy claims including the ‘who, what, where, when and how’ of the fraud and the conspiracy;

– FRCP 9’s pleading specificity rules are designed to discourage a ‘sue first, ask questions later’ mentality and to account for the stigma attached to fraud-based claims;

– a negligent misrepresentation claim is not subject to FRCP 9’s elevated pleading rules;

– FRCP 12(b)(6) generally only looks at a complaint’s four corners except where the complaint either attaches or specifically refers to outside documents;

–  a court may consider exhibits to a 12(b)(6) motion if the exhibit supplements a document attached to the complaint or where the defendant relies on the exhibit for the ‘same purpose’ as a document attached to the complaint

*5-6, 11; FRCP 8, 9, 12.

Applying these rules, the Court struck several of defendants’ motion exhibits that either weren’t attached to or incorporated by reference in plaintiffs’ complaint. *8.

The Court then sustained the plaintiffs’ fraud claims against the franchisor defendants.

While a fraud plaintiff must specifically plead the “who, what, when, where and how” of the fraud, allegations of malice, intent, knowledge of falsity and subjective matters can be alleged generally.  FRCP 9(b).

Here, the plaintiffs fraud claims were detailed.  They specifically pled the defendants knowingly misrepresented and omitted material facts involving the restaurant’s projected profits, build-out and construction costs, and general operating expenses.  Taken together, the allegations satisfied the pleading requirements for a valid fraud claim.  Wojcik, *11.

The plaintiffs’ civil  conspiracy claims failed.

An Illinois civil conspiracy plaintiff must plead and prove: (1) an agreement to accomplish an unlawful purpose or a lawful purpose by unlawful means, (2) a wrongful act in furtherance of the agreement, and (3) injury to the plaintiffWojcik, *11.

The agreement is the foundation of the conspiracy and requires proof of a defendant’s knowing and voluntary participation in a “common scheme” to commit an unlawful act or lawful act in an unlawful manner. 

Accidental, inadvertent, negligent or haphazard conduct is not enough to impose conspiracy liability on a defendant.  The plaintiff must plead the agreement’s critical details – including the “who, what, where, when and how” – to survive a motion to dismiss.  *12.

The Court held that plaintiffs’ conspiracy claims were too conclusory.  The plaintiffs merely parroted the elements of conspiracy and failed to plead critical details of the defendants’ agreement or their “common scheme” to harm the plaintiffs.  At most, plaintiffs pled negligence or breach of contract; not a conspiracy. *12.

Take-aways:

A court can consider external submissions on a 12(b)(6) motion where the challenged complaint incorporates or relies on an external document.  Wojcik also illustrates the required factual allegations that will satisfy Illinois state law fraud and civil conspiracy claims under Federal pleading rules.

 

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.