East Point Systems, Inc. et al v. Maxim et al, No. 3:2013cv00215 - Document 161 (D. Conn. 2015)
Court Description: ORDER granting 66 Motion to Dismiss, granting 123 Motion to Withdraw, and finding as moot 134 Motion for Summary Judgment. Signed by Judge Victor A. Bolden on 09/21/2015. (LaPre, E.)
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East Point Systems, Inc. et al v. Maxim et al Doc. 161 U N ITED STATES D ISTRICT COU RT FOR TH E D ISTRICT OF CON N ECTICU T EAST POINT SYSTEMS, INC., THOMAS MARGARIDO, J ASON MARGARIDO, AND PAUL TAFF Plaintiffs, v. STEVEN MAXIM, S2K, INC., MAXIM ENTERPRISES, INC., MAXIM FIELD SERVICE SUPPLY, INC., EDWIN PAJ EMOLA, AND CLEVELAND FIELD SYSTEMS, LLC Defendants. : : : : : : : : : : : : : : : CIVIL ACTION NO.: 3:13-cv-0 0 215-VAB SEPTEMBER 21, 20 15 RU LIN G AN D ORD ER I. IN TROD U CTION Plaintiffs, East Point System s, Inc. (“EPS”), Thom as Margarido, J ason Margarido, and Paul Taff, filed this action against Defendants, Steven Maxim , S2K, Inc. (“S2K”), Maxim Enterprises, Inc. (“MEI”), Maxim Field Service Supply, Inc. (“MFSS”), Edwin Pajem ola, and Cleveland Field System s, LLC (“CFS”) for breach of contract, statutory and com m on law breach of fiduciary duty, specific perform ance, tortious interference with business expectancy, violations of the Connecticut Uniform Trade Secrets Act, Conn. Gen. Stat. §§ 35-50 , et seq. (“CUTSA”), violations of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. §§ 42a-110 a, et. seq. (“CUTPA”), com puterrelated offense under Conn. Gen. Stat. § 53a-251, copyright infringem ent under 17 U.S.C. § 50 1, and im position of a constructive trust. 1 Dockets.Justia.com In their original Answer, Steven Maxim , S2K, MEI, and MFSS (collectively, the “Maxim Defendants”) counterclaim ed for breach of contract, fraud, quantum m eruit, accounting, specific perform ance, violations of CUTPA, rescission or reform ation, punitive dam ages, injunction, and declaratory judgm ent. ECF No. 22 at 62-75. Plaintiffs m oved to dism iss all of those counterclaim s. ECF No. 29. The Court granted Plaintiffs’ m otion by order dated February 7, 20 14 (the “First Order”). ECF No. 59. In the First Order, the Court concluded that the Maxim Defendants had not pleaded fraud with sufficient particularity, and granted them leave to re-plead only those claim s sounding in fraud – specifically, fraud, quantum m eruit based on fraud, CUTPA based on fraud, and rescission or reform ation based on fraud. See id. at 13, 16, 20 , 23. The Maxim Defendants then filed an Am ended Answer. ECF No. 63. In it, the Maxim Defendants re-asserted all of the dism issed counterclaim s except the independent count for punitive dam ages, and added a new counterclaim for breach of im plied warranty. See generally id. at 72-99. Plaintiffs have m oved to dism iss all of the counterclaim s asserted in the Maxim Defendants’ Am ended Answer. ECF No. 66. Plaintiffs also have m oved for sum m ary judgm ent as to those am ended counterclaims. ECF No. 134. The Maxim Defendants ultim ately realized that the First Order had not given them leave to re-plead certain of the counterclaim s asserted in their Am ended Answer. They have m oved to withdraw those counterclaim s, specifically, counts 1, 2, 4, 5, 9, and 10 , as well as paragraphs 380 through 383 of count 6. ECF No. 123. Plaintiffs ask that the Court dism iss those claim s with prejudice. ECF No. 126. 2 A. Mo tio n to W ith d raw Am e n d e d Co u n te rclaim s [ ECF N o . 12 3 ] The Maxim Defendants’ m otion to withdraw counterclaim s (ECF No. 123) is GRANTED. Counts 1, 2, 4, 5, 9, and 10 are dism issed with prejudice consistent with the First Order. Paragraphs 380 through 383 of count 6 are withdrawn. The counterclaim s that rem ain are addressed in the Court’s below ruling on Plaintiffs’ m otion to dism iss. B. Mo tio n to D is m is s Am e n d e d Co u n te rclaim s [ ECF N o . 6 6 ] Plaintiffs have m oved under Federal Rules of Civil Procedure 9(b) and 12(b)(6) to dism iss all rem aining counterclaim s in the Maxim Defendants’ Am ended Answer. For the reasons stated below, the m otion is GRANTED. 1. Stan d ard o f Re vie w To survive a m otion to dism iss under Federal Rule of Civil Procedure 12(b)(6), a plaintiff m ust state a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (20 0 9). A claim is facially plausible if “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the m isconduct alleged.” Id. Although “detailed factual allegations” are not required, a com plaint m ust offer m ore than “labels and conclusions,” or “a form ulaic recitation of the elem ents of a cause of action” or “naked assertion[s]” devoid of “further factual enhancem ent.” Bell Atl. Corp. v. Tw om bly , 550 U.S. 544, 555, 557 (20 0 7). “The plausibility standard is not akin to a ‘probability requirem ent,’ but it asks for m ore than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678 (quoting Tw om bly , 550 U.S. at 556). In determ ining whether the plaintiff has m et this standard, the Court m ust accept the allegations in the com plaint as true and draw all reasonable inferences in the light m ost favorable to the non-m oving party, In re NYSE Specialists Sec. Litig., 50 3 F.3d 89, 3 95 (2d Cir. 20 0 7), and generally m ay consider only “the facts as asserted within the four corners of the com plaint, the docum ents attached to the com plaint as exhibits, and any docum ents incorporated in the com plaint by reference.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 20 0 7). A plaintiff alleging statutory or com m on law fraud m ust also com ply with Federal Rule of Civil Procedure 9(b), which requires a party to state the circum stances constituting fraud “with particularity.” Fed. R. Civ. P. 9(b). “Specifically, the com plaint m ust: (1) specify the statem ents that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statem ents were m ade, and (4) explain why the statem ents were fraudulent.” Mills v. Polar Molecular Corp., 12 F.3d 1170 , 1175 (2d Cir. 1993); Lundy v. Catholic Health Sy s. of Long Island Inc., 711 F.3d 10 6, 119 (2d Cir. 20 13) (“[T]he ‘com plaint m ust adequately specify the statem ents it claim s were false or m isleading, give particulars as to the respect in which plaintiff contends the statem ents were fraudulent, state when and where the statem ents were m ade, and identify those responsible for the statem ents.’”) (quoting Cosm as v. Hassett, 886 F.2d 8, 11 (2d Cir. 1989)). Although a plaintiff m ay plead generally the requisite fraudulent intent, he m ust allege facts giving rise to a strong inference of fraudulent intent, which m ay include facts showing that the defendant(s) had both m otive and opportunity to com m it fraud, or facts that constitute strong circum stantial evidence of conscious m isbehavior or recklessness. Lerner v . Fleet Bank, N.A., 459 F.3d 273, 290 -91 (2d Cir. 20 0 6); see also O'Brien v. Nat'l Prop. Analy sts Partners, 936 F.2d 674, 676 (2d Cir. 1991) (inference of scienter m ust be supported by “am ple factual basis”). 4 2. D is cu s s io n a. Co u n t Th re e – Frau d In the First Order, the Court concluded that the Maxim Defendants had failed to state a fraud claim because their allegations were “conclusory assertions of generalized m isrepresentations” and did not specify “who actually m ade the statem ents, when the statem ents were m ade, and to whom they were m ade.” ECF No. 59 at 12-13. Thus, the allegations did not com ply with Rule 9(b)’s requirem ent to allege fraud with particularity. Id. The Maxim Defendants have added allegations pertaining to the content, dates, and speakers of the alleged m isrepresentations, but a fundam ental lack of particularity rem ains, and therefore the am ended fraud counterclaim m ust be dism issed. Under Connecticut law, the elem ents of a fraud claim are “(1) a false representation was m ade as a statem ent of fact; (2) it was untrue and known to be untrue by the party m aking it; (3) it was m ade to induce the other party to act upon it; and (4) the other party did so act upon that false representation to his injury.” Sturm v. Harb Dev., LLC, 2 A.3d 859, 872 (Conn. 20 10 ). A fraudulent representation is one that is “knowingly untrue, or m ade without belief in its truth, or recklessly m ade and for the purpose of inducing action upon it.” Id. (quoting Kram er v. Petisi, 940 A.2d 80 0 , 80 6 n.9 (Conn. 20 0 8)). In support of their am ended fraud counterclaim , the Maxim Defendants allege essentially four m isrepresentations. i. Fin an cial Pro je ctio n s First, the Maxim Defendants allege that in late 20 0 3, “Plaintiffs put together financial projections for the purpose of finding investors to contribute m oney to [EPS’s 5 predecessor], which financial projections showed that [EPS’s predecessor] would generate profits in future years sufficient to justify the investm ent of $ 250 ,0 0 0 .” ECF No. 63 ¶ 288. The financial projections allegedly were not prepared by an accountant, but rather by a person retained by Plaintiffs who is described, in an unattributed quote, as “‘som eone who knew som ething about how to put a docum ent together.’” Id. ¶ 289. The Maxim Defendants allege that “the projections intentionally m isrepresented the future financial perform ance and expectation of profitability.” Id. In reliance on the projections, Steven Maxim allegedly caused S2K to purchase approxim ately six percent of EPS’s initial stock offering for $ 250 ,0 0 0 . Id. ¶¶ 295, 297. The Maxim Defendants allege that they would not have m ade that investm ent had they known, in part, that the projections were not prepared by a financial professional in accordance with generally accepted accounting principles. Id. ¶ 30 1.a. As to scienter, the Maxim Defendants allege that “Plaintiffs knew or should have known” that the projections were false or were m ade with reckless disregard for the truth because EPS’s predecessor had not m aintained any balance sheets, profit and loss statem ents, or cash flow statem ents upon which an accurate projection could be based. Id. ¶ 291. These allegations fail to state with particularity a plausible claim for fraud because they do not give rise to a strong inference of fraudulent intent. “For forward looking statem ents, such as projections about the future perform ance of an investm ent, Rule 9(b) requires that a com plaint allege particular facts dem onstrating that the defendant knew or recklessly disregarded that the projections were false at the tim e that such projections were m ade.” In re Colonial Ltd. P'ship 6 Litig., 854 F. Supp. 64, 97 (D. Conn. 1994) (citing DiVittorio v. Equidy ne Extractive Indus., Inc., 822 F.2d 1242, 1248 (2d Cir. 1987)) (em phasis in original). Although a plaintiff m ay plead generally the requisite fraudulent intent, he m ust allege facts giving rise to a strong inference of fraudulent intent, which m ay be done in two ways: (1) by alleging facts showing that the alleged fraudster “had both m otive and opportunity to com m it fraud” or (2) by alleging facts that constitute “strong circum stantial evidence of conscious m isbehavior or recklessness.” Chill v. Gen. Elec. Co., 10 1 F.3d 263, 267 (2d Cir. 1996). To establish fraudulent intent through m otive and opportunity, one cannot rely on m otives possessed by virtually all corporate entities and insiders, such as the m otive to m aintain an appearance of profitability an d success, or the m otive to m aintain a high stock price or credit rating. N ovak v. Kasaks, 216 F.3d 30 0 , 30 7 (2d Cir. 20 0 0 ). Rather, the m otive m ust be to benefit in a concrete and personal way, such as to sell one’s own shares at an artificially high price. Id. at 30 7-0 8. Here, the Maxim Defendants allege that Plaintiffs m ade the projections for the purpose of finding investors to contribute m oney to EPS’s predecessor in order to save it from going out of business. See ECF No. 63 ¶¶ 287-88. The m otive to raise capital in order to keep a business solvent is not the sort of selfish m otive that gives rise to a strong inference of fraudulent intent. See Novak, 216 F.3d at 30 7. The Maxim Defendants also have failed to establish fraudulent intent through strong circum stantial evidence of conscious m isbehavior or recklessness. First, their conclusory allegation that Plaintiffs “intentionally m isrepresented” future profits does not constitute an am ple factual basis from which the Court m ay infer intentional or conscious m isbehavior. O'Brien, 936 F.2d at 676 (inference of scienter m ust be 7 supported by “am ple factual basis”); Shields v. City trust Bancorp, Inc., 25 F.3d 1124, 1129 (2d Cir. 1994) (allegations that defendants “intentionally concealed” vulnerability were “so broad and conclusory as to be m eaningless”). Second, the Court does not find strong circum stantial evidence of recklessness in the Maxim Defendants’ allegations that the projections were prepared by som eone who was not an accountant or financial professional, and that EPS’s predecessor did not m aintain balance sheets, profit and loss statem ents, or cash flow statem ents. “[R]eckless conduct is, at the least, conduct which is highly unreasonable and which represents an extrem e departure from the standards of ordinary care . . . to the extent that the danger was either known to the defendant or so obvious that the defendant m ust have been aware of it.” Chill, 10 1 F.3d at 269 (quoting Rolf v. Bly th, Eastm an Dillon & Co., 570 F.2d 38, 47 (2d Cir. 1978)). “An egregious refusal to see the obvious, or to investigate the doubtful, m ay in som e cases give rise to an inference of . . . recklessness.” Id. (quoting Goldm an v. McMahan, Brafm an, Morgan & Co., 70 6 F. Supp. 256, 259 (S.D.N.Y. 1989)). The Second Circuit has observed that recklessness is alleged plausibly where there are specific allegations regarding the “defendants’ knowledge of facts or access to inform ation contradicting their” alleged fraudulent statem ents. N ovak, 216 F.3d at 30 8. The Maxim Defendants have not alleged that Plaintiffs, at the tim e the projections were m ade, had knowledge of facts or access to inform ation relating to the future financial perform ance of EPS’s predecessor that contradicted the projections. So long as the projections were consistent with data reasonably available to Plaintiffs, and there is no particularized allegation that they were not, Plaintiffs “need[ed] not present an overly gloom y or cautious picture of current perform ance and future prospects.” Id. 8 at 30 9; accord Shields, 25 F.3d at 1129-30 (“People in charge of an enterprise are not required to take a gloom y, fearful or defeatist view of the future; subject to what current data indicates, they can be expected to be confident about their stewardship and the prospects of the business that they m anage.”). The Second Circuit has refused to allow plaintiffs to proceed with allegations based on “fraud by hindsight.” N ovak, 216 F.3d at 30 9. “Corporate officials need not be clairvoyant; they are only responsible for revealing those m aterial facts reasonably available to them .” Id. The Maxim Defendants have not alleged that the projections were contradicted by or inconsistent with inform ation available to Plaintiffs at the tim e they were m ade. See Shields, 25 F.3d at 1129-30 (plaintiff failed to allege fraudulent intent with sufficient particularity where allegations did “not say . . . that the com pany’s disclosures were inconsistent with current data.”). The Second Circuit also has found recklessn ess where the plaintiffs alleged “facts dem onstrating that defendants failed to review or check inform ation that they had a duty to m onitor, or ignored obvious signs of fraud.” N ovak, 216 F.3d at 30 9. However, the Maxim Defendants have failed to allege with any particularity what figures were offered in the projections, or how they were false at the tim e they were m ade. See Lundy , 711 F.3d at 119 (“[T]he com plaint m ust adequately specify the statem ents it claim s were false or m isleading, [and] give particulars as to the respect in which plaintiff contends the statem ents were fraudulent . . . .”). As a result, the Court cannot infer that the projections were so inflated that the Plaintiffs m ust have been aware of their falsity, or that the Plaintiffs could be said to have “ignored obvious signs of fraud,” N ovak, 216 F.3d at 30 9, “egregious[ly] refus[ed] to see the obvious, or to investigate the doubtful.” Chill, 10 1 F.3d at 269. 9 For the foregoing reasons, the Maxim Defendants’ allegations pertaining to the financial projections fail to state with sufficient particularity a plausible claim for fraud. ii. Pro m is e to Re tu rn In ve s tm e n t Second, the Maxim Defendants allege that, at or around the tim e that S2K invested in EPS in late 20 0 3, Plaintiff Tom Margarido 1 told Steven Maxim that he would “receive the return of his investm ent” before any of EPS’s predecessor’s other shareholders (which included Plaintiffs Tom Margarido, J ason Margarido, and Paul Taff) received any return on their investm ents. ECF No. 63 ¶ 296. This allegation fails to state a plausible and particularized fraud claim for two reasons. First, the Maxim Defendants have failed to allege with particularity that the statem ent was false. See Sturm , 2 A.3d at 872 (first elem ent of a fraud claim is a false representation m ade as a statem ent of fact). The Maxim Defendants do not expressly allege that any shareholders actually received returns before Mr. Maxim , which shareholders allegedly received such returns, or when they allegedly received such returns. Instead, the Maxim Defendants sim ply allege that the “prom ise turned out to be false.” ECF No. 63 ¶ 296. To state a fraud claim with particularity, “the com plaint m ust . . . explain why the statem ents were fraudulent.” Mills, 12 F.3d at 1175. Here, the Maxim Defendants have failed to allege with any particularity how the alleged statem ent “turned out to be false.” See ECF No. 63 ¶ 296. Second, at m ost, the Maxim Defendants have alleged that Tom Margarido made a prom ise and breached that prom ise. A sim ple breach does not am ount to fraud. Sallies 1 The Maxim Defendants allege at paragraph 296 of the Am ended Answer that “Plaintiffs” m ade this representation, ECF No. 63 ¶ 296, but allege at paragraph 339.b of the Am ended Answer, id. ¶ 339.b, and at page 14 of their opposition m em orandum , ECF No. 72 at 14, that Plaintiff Tom Margarido made this representation. Drawing all reasonable inferences in the Maxim Defendants’ favor with a view toward the requirem ent to attribute statements to specified speakers, the Court will assume that only Plaintiff Tom Margarido is alleged to have m ade this representation. 10 v. Johnson, 81 A. 974, 975 (Conn. 1911) (“The breach of an honest prom ise to perform can never support an action of fraud.”) However, “the prom ise to do a future act coupled with a present intention not to fulfill the prom ise will constitute a fraudulent prom ise.” Id. But the Maxim Defendants have not alleged facts giving rise to a strong inference that Tom Margarido had such a fraudulent intention when he allegedly m ade this representation to Mr. Maxim . As to m otive and opportunity, the Maxim Defendants allege that all of the alleged fraudulent statem ents “were m ade by the Plaintiffs for their own benefit.” ECF No. 63 ¶ 342. This broad and conclusory allegation is not sufficiently particularized to give rise to a strong inference that Tom Margarido was possessed of a m otive to enrich him self in som e concrete and personal way by m aking this representation, especially given the fact that, despite S2K’s shareholder access to EPS’s books and records, the Maxim Defendants have not alleged in their Am ended Answer that Tom Margarido actually received a return before Mr. Maxim . As to strong circum stantial evidence of conscious m isbehavior or recklessness, apart from the broad and conclusory allegations that Tom Margarido m ade this alleged m isrepresentation “for [his] own benefit,” id. ¶ 342, as part of a “schem e to deprive Maxim Entities of m ost of their investm ent,” id. ¶ 348, in a “corrupt state of affairs,” id. ¶ 349, the Maxim Defendants have not alleged any facts existing at the tim e of the alleged m isrepresentation strongly evidencing Tom Margarido’s intention to distribute returns to other shareholders before Mr. Maxim . The Court finds no other allegations in the Am ended Answer that would give rise to a strong inference of “highly unreasonable” conduct that represents “an extrem e departure from the standards of reasonable care,” 11 N ovak, 216 F.3d at 30 8, or that could provide the “am ple factual basis” on which the Court m ust base an inference of scienter, O'Brien, 936 F.2d at 676. iii. Cap ability o f D e ve lo p in g So ftw are Third, the Maxim Defendants allege that, at or around the tim e that S2K invested in EPS in late 20 0 3, Plaintiff Tom Margarido 2 assured Steven Maxim that EPS “possessed the capability of providing a com puter software program that could satisfy the needs of Maxim Enterprises.” ECF No. 63 ¶¶ 295, 339.c. The Maxim Defendants allege that EPS ultim ately did not produce software that satisfied their needs. See id. ¶¶ 30 2-0 4. These allegations attem pt to proceed on the prohibited theory of “fraud by hindsight.” Stevelm an v. Alias Research Inc., 174 F.3d 79, 85 (2d Cir. 1999). The Maxim Defendants characterize Tom Margarido’s alleged statem ent regarding EPS’s ability to develop software as “over-optim istic.” ECF No. 63 ¶ 340 . “Managem ent’s optim ism that is shown only after the fact to have been unwarranted does not, by itself, give rise to an inference of fraud.” Stevelm an, 174 F.3d at 85. “Cheerleading only becom es fraud if defendants had access to contrary facts,” Frazier v. VitalW orks, Inc., 341 F. Supp. 2d 142, 154 (D. Conn. 20 0 4), and the Maxim Defendants have not alleged with any particularity that Tom Margarido knew or should have known of lim itations on EPS’s ability to develop software that would satisfy Maxim ’s needs sufficient to render his statem ent knowingly false. More fundam entally, the Maxim Defendants have not 2 Again, the Maxim Defendants allege at paragraph 295 of the Am ended Answer, ECF No. 63 ¶ 295, that Plaintiffs m ade this representation, but allege at paragraph 339.c of the Am ended Answer, id. ¶ 339.c, and at page 14 of their opposition m em orandum , ECF No. 72 at 14, that Plaintiff Tom Margarido made this representation. As above, the Court will assum e that only Plaintiff Tom Margarido is alleged to have m ade this representation. 12 alleged plausibly that this statem ent was false when m ade. A representation that one is capable of doing som ething is not false sim ply because the speaker later fails to execute. iv. Th re at o f In s o lve n cy Fourth and finally, the Maxim Defendants allege that, in late 20 0 3, Plaintiff Tom Margarido told Mr. Maxim that EPS “m ight go out of business without a significant cash contribution and, if it ‘went down’ because one of the Maxim Entities did not m ake such investm ent, Maxim Enterprises would not be able to locate another com pany that could deliver the necessary com puter software program .” ECF No. 63 ¶ 287. The Maxim Defendants allege that Tom Margarido knew that MEI had com e to rely upon EPS’s software and that MEI would suffer harm if that software was no longer serviced. Id. ¶ 339.d. This allegation fails to state a claim for fraud because the Maxim Defendants have not alleged that the statem ent was false. Sturm , 2 A.3d at 872 (first elem ent of a fraud claim is a false representation m ade as a statem ent of fact); Mills, 12 F.3d at 1175 (“the com plaint m ust . . . explain why the statem ents were fraudulent.”). In short, they have not alleged that EPS would not go out of business without a cash infusion and therefore be unable to service the software. For the foregoing reasons, the Am ended Answer fails to state a plausible and particularized claim for fraud. Count Three of the Am ended Answer’s Counterclaim is dism issed with prejudice. See Shields, 25 F.3d at 1132 (district court did not abuse its discretion in dism issing fraud claim with prejudice where plaintiff had am ended her com plaint once before and did not request further leave to am end). 13 b. Co u n t Six – CU TPA The Maxim Defendants’ original CUTPA counterclaim was grounded in two sets of allegations. One set concerned alleged fraudulent m isrepresentations. ECF No. 22 ¶¶ 319-21. The other set concerned alleged attem pts to use buy-sell agreem ents to force m inority shareholders to sell their shares at depressed prices. Id. ¶¶ 322-324. In the First Order, the Court dism issed the original CUTPA counterclaim and gave the Maxim Defendants leave to re-plead only on the basis of the fraud allegations, not the buy-sell agreem ents. See ECF No. 59 at 20 -21. Nonetheless, the am ended CUTPA counterclaim alleges both grounds again. ECF No. 63 ¶¶ 375-83. However, the Maxim Defendants have withdrawn the paragraphs pertaining to the buy-sell agreem ents. ECF No. 123. As to the fraud ground, the Maxim Defendants rely on the four alleged m isrepresentations discussed above, and allege that those m isrepresentations constituted “im m oral, unethical, oppressive or unscrupulous” conduct in violation of CUTPA. See ECF No. 63 ¶¶ 375-79, 384. As it did in the First Order, ECF No. 59 at 20 , the Court concludes that because the Maxim Defendants have failed to plead fraud with sufficient particularity, their fraud allegations cannot support a CUTPA claim . See Aviam ax Aviation Ltd. v. Bom bardier Aerospace Corp., 3:0 8– cv– 1958 (CFD), 20 10 WL 1882316, at *9 (D. Conn. May 10 , 20 10 ) (“When a plaintiff in federal court bases a CUTPA claim on fraud allegations, the plaintiff m ust satisfy the particularity requirem ent of Federal Rule of Civil Procedure 9(b).”); Tatum v. Oberg, 650 F. Supp. 2d 185, 195 (D. Conn. 20 0 9) (“CUTPA claim s brought in federal court only m ust satisfy Rule 9(b) if such claim s are based on fraud allegations.”). Accordingly, Count Six of the Am ended Answer’s Counterclaim is dism issed with prejudice. 14 c. Co u n t Se ve n – Re s cis s io n an d Re fo rm atio n In the First Order, the Court dism issed the Maxim Defendants’ counterclaim for reform ation because they had not pled any m istake and because the alleged fraudulent m isrepresentations on which the claim apparently was based were not alleged with sufficient particularity. ECF No. 59 at 22. The Court also dism issed the Maxim Defendants’ claim for rescission because it was based on insufficiently particularized fraud allegations. Id. at 23. The am ended counterclaim s fail for the sam e reasons. “A cause of action for reform ation of contract rests upon the equitable theory that the instrum ent sought to be reform ed does not conform to the real contract agreed upon and does not express the intention of the parties and that it was executed as the result of m utual m istake, or m istake of one party coupled with actual or constructive fraud, or inequitable conduct on the part of the other.” Trenw ick Am erica Reinsurance Corp. v. W .R. Berkley Corp., 54 A.3d 20 9, 216 (Conn. App. Ct. 20 12) (quoting Greenw ich Contracting Co. v. Bonw it Constr. Co., 239 A.2d 519, 521 (Conn. 1968)). Thus, “[r]eform ation is appropriate in cases of m utual m istake . . . [and] when the instrum ent does not express the true intent of the parties owing to the m istake of one party coupled with fraud, actual or constructive, or inequitable conduct on the part of the other.” Harlach v. Metro. Prop. & Liab. Ins. Co., 60 2 A.2d 10 0 7, 10 0 9-10 (Conn. 1992). “Mistake m eans a state of m ind that is not in accord with the facts.” Milford Yacht Realty Co. v. Milford Yacht Club, 72 A.2d 482, 484 (Conn. 1950 ). The am ended counterclaim for reform ation fails because the Maxim Defendants have not alleged plausibly a m utual m istake or unilateral m istake coupled with fraud or inequitable conduct. 15 First, they allege that the “Maxim Entities’ lack of knowledge of facts . . . rendered the purchase [of stock] inequitable,” but do not allege the m aterial facts of which they allegedly were unaware. ECF No. 63 ¶ 395. Second, they allege that a non-com petition agreem ent by and between EPS and Steven Maxim contains provisions that are “one-sided,” ECF No. 63 ¶ 396, but allege no facts from which the Court could plausibly infer that the non-com petition agreem ent, even if “one-sided,” was executed as the result of m utual m istake or unilateral m istake coupled with inequitable conduct. Mr. Maxim signed, and presum ably reviewed, the non-com petition agreem ent. ECF No. 1-13 at 4. See 17A Am . J ur. 2d Contracts § 20 9 (20 15) (“One who accepts a written contract is conclusively presum ed to know its contents and to assent to them . A party signing a written contract has a duty to inform him or herself of its contents before executing it. Thus, absent fraud or m istake, ignorance of a written contract's contents will not negate its effect or affect the liability of one who signs it or who accepts it otherwise than by signing it.”) (internal citations om itted). The Maxim Defendants essentially allege that they entered into a bad contract, but not that the term s of that contract were at variance with the parties’ intent. “Reform ation is not granted for the purpose of alleviating a hard or oppressive bargain, but rather to restate the intended term s of an agreem ent when the writing that m em orializes that agreem ent is at variance with the intent of both parties.” Lopinto v. Haines, 185 Conn. 527, 532, 441 A.2d 151 (1981). Third and finally, they allege that Tom Margarido and Steven Maxim agreed that the Maxim Defendants could develop software and use it for their business without paying Plaintiffs, and that because the software that the Maxim Defendants ultim ately developed is not derivative of Plaintiffs’ software “there is no reasonable rationale to 16 support any requirem ent contained within the 20 0 8 Non-com pete Agreem ent (Doc. # 113) to transfer or disclose any code, design, architecture or other proprietary inform ation” to Plaintiffs. ECF No. 63 ¶¶ 397-98. These allegations do not support an inference that the non-com petition agreem ent did “not express the intention of the parties and . . . was executed as a result of” m istake. Trenw ick, 54 A.3d at 216. Indeed, the agreem ent’s term s com port with the Maxim Defendants’ understanding. The agreem ent prohibits Steven Maxim from using EPS’s “Confidential Inform ation” for his own benefit. ECF No. 1-13 ¶ 2.B. Excluded from “Confidential Inform ation” is inform ation that is available to the public, was previously known to Maxim , or was independently developed by Maxim without the aid, application, or use of EPS’s “Confidential Inform ation.” ECF No. 1-13 ¶ 1.B. It m ay bear out in this lawsuit that the Maxim Defendants’ software was developed without the use of EPS’s “Confidential Inform ation” and that the Maxim Defendants need not turn over any code or other inform ation under the non-com petition agreement. Indeed, that is one of the Maxim Defendants’ defenses in this action. See, e.g., ECF No. 63 ¶ 10 9. But that potential outcom e does not suggest any m istake with respect to the noncom petition agreem ent. Maxim executed the non-com petition agreem ent, and there is no plausible allegation that either party’s intent was not reflected in its term s. For the foregoing reasons, the Maxim Defendants have failed to state a plausible claim for reform ation. See, e.g., Harlach v. Metropolitan Prop. and Liabl. Ins. Co., 60 2 A.2d 10 0 7, 10 10 (Conn. 1992) (reversing reform ation where there was no proof or claim of m istake, fraud, or inequitable conduct coupled with m istake); Richards v. Richards, 829 A.2d 60 , 65 n.7 (20 0 3) (plaintiff not entitled to reform ation because “[t]here was no finding of m istake . . . .”). 17 “[R]escission based on a m istaken understanding of the term s of an agreem ent is available only where the m istake is m utual, or where one party's m istake has been caused by the other party's fraud.” Gebbie v. Cadle Co., 714 A.2d 678, 684 (Conn. App. Ct. 1998). Because the Maxim Defendants have not plausibly alleged fraud or m istake, their rescission counterclaim fails as well. For the foregoing reasons, Count Seven of the Am ended Answer’s Counterclaim is dism issed with prejudice. d. Co u n t Eigh t There is no Count Eight in the Am ended Answer. See ECF No. 63 at 91-96. 3. Co n clu s io n For the foregoing reasons, Plaintiffs’ m otion to dism iss the Maxim Defendants’ am ended counterclaim s (ECF No. 66) is GRANTED. C. Mo tio n fo r Su m m ary Ju d gm e n t as to Am e n d e d Co u n te rclaim s [ ECF N o . 13 4 ] Plaintiffs m oved for sum m ary judgm ent as to the Maxim Defendants’ am ended counterclaim s. Because those counterclaims have been dism issed, this m otion (ECF No. 134) is FOUND AS MOOT. SO ORDERED at Bridgeport, Connecticut this twenty-first day of Septem ber, 20 15. / s/ Victor A. Bolden VICTOR A. BOLDEN UNITED STATES DISTRICT J UDGE 18
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