Argus Management Corporation v. Siemens Corporation, No. 1:2011cv01923 - Document 25 (S.D.N.Y. 2011)
Court Description: MEMORANDUM AND OPINION re: 11 MOTION to Dismiss Count VIII of the Complaint filed by Siemens Corporation. Based on the conclusions set forth above, the motion of Siemens is granted and Court VIII of the Complaint is dismissed with leave granted to replead within 20 days. (Signed by Judge Robert W. Sweet on 9/23/2011) (mro)
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ----- -x ARGUS MANAGEMENT CORPORATION, solely in its capacity as Representative of the Voting Trustees of the Morgan Construction Company Voting Trust, 11 Civ. 1923 OPINION Plaintiff, -againstSIEMENS CORPORATION, Defendant. --x A P PEA RAN C E S: Attorneys for Plaintiff BROWN RUDNICK LLP 7 Times Square New York, NY 10036 By: William R. diga, Esq. -andBROWN RUDNICK LLP One Financial Center Boston, MA 02111 By: Cheryl B. Pinarchick, Esq. for Defendant REED SMITH LLP 599 Lexington Avenue New York, NY 10022 By: Jordan W. Siev, Esq. David A. Kochman, Esq. Sweet, D.J. The defendant Siemens Corporation ("Jiemens lf or the IfDefendant lf ) has moved pursuant to Rule 12(b) (J) to dismiss I Count VIII of the Complaint filed by plaintiff Argus Management Corporation ("Argus" or the IfPlaintifflf). Basj1d upon the conclusions set forth below, the motion is gra :ted. Count VIII is dismissed with leave granted to replead. Prior Proceedings On December 21, 2007, an Agreement a1d Plan of Merger was entered into between and among Siemens, MCci Acquisition Co. (a wholly-owned subsidiary of Siemens), and Mor~an Company (IfMorganlf) (Merger Agreement § (the If Merger Agreement") Construction 2.1). The Merger Agreement contained indemnification, to indemnify and hold Siemens. . harmle6s from, any damage, loss, liability, cost or expense . i ¢ ¢ , other than consequent damages and lost profits . . . suffered or incurred by [Siemens] to the e~tent arising from (i) any breach of any represe tation or warranty of [Morgan] contained in th[e] [M rger] 1 Agreement and the Disclosure Letter or an certificate delivered pursuant heretoi and (ii) any b each of any covenant or undertaking of the Company co tained this Agreement. (Merger Agreement § 13.1(a}). The sale closed on April 3 1 2008. April 11 2010 1 0 Siemens asserted indemnity claims against the ellers. On March 18 1 2011 1 Argus filed its Complaint containing eight causes action. Seven of Atgus' eight claims are for breach of contract or declaratory 83 115). Count VIII of the Complaint reli~f. leges (Complaint hat Siemens' actions with respect to the indemnity claims c nstitute unfair or deceptive acts or practices in violation of Mass. Gen. Laws ch. 93AI § 11 I a provision of Massachusetts' state consumer protection statute. (Complaint ~~ 116-27). The instant motion to dismiss Count fully submitted on June 6 1 2011. The Rule 12(b) (6) Standard 2 II was marked ~~ On a motion to dismiss pursuant to RJle 12, all factual allegations in the complaint are accep~ed as true, and 1 inferences are drawn in favor of the PleadJr. Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d i r. 1Q93). The issue "is not whether a plaintiff will ultimately prJvail but whether the claimant is entitled to offer evidence to Jupport the claims. If Villager Pond, Inc. v. Town of Darien,i 56 F. 3d 375, 378 (2d Cir. 1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 235-36, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)). To survive a motion to dismiss pursulnt to Rule 12(b) (6), "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to reI on its face. f/' Ashcroft v. Iqbal, 1949, 173 L.Ed.2d 868 (2009) -U.S. -- f tihat is plausible ,129 S.Ct. 1937, (quoting Bell Atl Corp. v. Twombl , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d i929 Plaintiffs must allege suffi (2007)). ent facts to "nudte[ ] the claims across the line from conceivable to plausible." Twombly, i 550 U.S. at 570, 127 S.Ct. 1955. Though the court must accept the factual allegations of a complaint as true, it is "not bound to accept as true a legal conclusion couched as a factual i allegation." Iqbal, 129 S.Ct. at 1949 (quoting rWOmblY, 550 U.S. at 555, 127 S. Ct. 1955). 3 Count VIII Is Dismissed Argus in Count VIII its Complaint has alleged a violation of Mass. Gen. Laws ch. 93A § 11 base upon the same I leged facts asserted to support its breach of contract and declaratory judgment claims; namely, that Siem~ns failed to advance valid claims for indemnity under the M Agreement, led to comply with the ter the Merger and that Siemens Agreement in pursuing those claims. The Merger Agreement IS choice-of-Iaw Iclause provides that: This Agreement, and the respect rights, dut and obligations of parties hereunder, shall be governed and construed in accordance with the laws of State of New York, regardless of the laws that might otherwise govern under applicable p inc es of conflicts of laws thereof, except for matters ating to the corporate attributes of [Morgan], Siemens, and [MCC] , the respective rights and duties of the directors and officers, in such capacities, of [Morgan], Siemens, and [MCC], the procedues consummating the Merger, the corporate authority and capacity of [Morgan] and [MCC] and the effects of the Merger, shall all be governed by, and con~trued in accordance with, Massachusetts law with rdspect to [Morgan] and [MCC] and the DGCL [Delaware General Corporate Law] with respect to Siemens, without to conflict of laws principles thereunder. 1 4 (§ 15.10). Because Argus invokes this Court's diversity ~ jurisdiction in bringing this action (Complain 11), New York choice-of-law principles govern this dispute. E.g., Lee v. Bankers Trust Co., 166 F.3d 540, 545 (2d Cir. 999) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)). uphold choice-of-law provi New York curts generally within contrac s. See Fieger v. Pitney Bowes Credit Corp., 251 F.3d 386, 393 ( d Cir. 2001). According to , Article XIII of Agreement requires S to: (i) "provide r asonably prompt written notice of the [indemnity] Claims to ~ 120) i (ii) 11 specify he Merger [A~9US],,, (Complaint reasonable detail the basis of the [indemnity] Claims, and thereafter to provide supporting documentation and information to [Argus] practicable, , 11 id. ; (iii) the amount of its damages, indemnificat II 'as promptly as "provide a good faith estimate of id. i and (iv) in good faith." its ch. 93A claim on Siemens' purported (Id. mate "any ~ 21). breach~s claims for Argus of these obligations, contending that Siemens violated ch. 93A (and, therefore, Arti e XIII) by "lack[ing] . . . good th bringing the [indemnity] Claims [and] deliberate [ly] attempt [ing] to prevent [Argus] from timely orlproperly 5 s investigating the validity of th[ose] Claims." (Id. ~ 124). Argus has asserted that the same alleged behav'or on the part of Siemens constitutes a breach of contract. (Se id. ~~ 112-14) (alleging that Siemens breached the Merger Agr ement by "failing to promptly provide the supporting information and documentation requested by [Argus] ," "failing to bring the ['ndemnity] Claims in good faith," and "failing to make reasonabl , good faith estimates of its [indemnity] Claims"). According to Siemens, these allegati ns demonstrate that Argus' ch. 93A claim hinges on the proper interpretation of contractual rights, duties, and obligations un The New York choice-of-law clause in the Merge XIII. Agreement precludes Argus' ch. 93A claim as a matter of In similar circumstances, other cour s have rejected attempts by contractual parties to assert ch. 3A claims in the face of a comprehensive choice-of-law clause. See, e.g., Worldwide Commodities, Inc. v. J. Amicone Co., 630 N.E.2d 615, 618 aw provision (Mass. App. Ct. 1994) (New York choice of prevented assertion of ch. 93A claims where "c ntract violations were at the core" of those claims) i McDonnell Douglas Computer Sys. Co., 6 Inc. v. Ne. Data S ------------~--~--------- 986 F.2d 07, 609-11 (1st Cir. 1993) (Breyer, C.J.) (party to a contract could not assert ch. 93A claim that amounted to an nembroidered.breach of contract claim" against counterparty in the fate of California choice of law provision in contract (punctuatiGn omitted)) i I Trustees of Boston Univ. v. Ligand Pharms., In ., No. Civ. A. 02-1312-SLR, 2003 WL 1873839, at *4 (D. Del. A r. 11, 2003) (Delaware choice of law provision in merger agteement barred assertion of ch. 93A claim based on allegation that acquiring company lIknowingly and willfully breached the agreement n) . However, Argus seeks to characterize Siemens' alleged breach of the Merger Agreement as a claim arising outside of that agreement and sounding in tort. In its Complaint, Argus couches its ch. 93A claim on two factual premises: bringing t that Siemens (i) [indemni ty] claims," "lack[ed] good faith in (Complaint <]I i124); and (ii) "deliberate [ly] attempt [ed] to prevent [Argus] from timely or properly investigating the validity of the (Id. ) . 7 [ind~mnity] Claims." Argus has contended that Siemens' all~ged acts are "more akin to a tort or misrepresentation p. 12). clait'." (Opposition However, Argus' claims are predicated! upon alleged i breaches of the Merger Agreement, and that agr$ement establis t re ct rights, duties and obligations 1f perform thereunder, and the Complaint lacks an s rties to the allegations to support a finding that a separate, extra contractual duty was created between the parties such that an indePtndent tort claim may lie. Cf. Anderson v. Fox Hill Vill. Homeo~ners Corp., 424 ! Mass. 365, 368, 676 N.E.2d 821 contractual obli (1997) ("[FJaillre to perform a ion is not a tort in the ab,ence of a duty to act apart from the promise made."). The cases Argus cites r the argumel that s ch. 93A claim is closer in character to a "tort or misrepresentation" than a breach of contract argument. not support its Schimmel v. Pfizer, Inc., Index No. 600173/2008, 2008 i NY Slip Op. 32388U (N.Y. Sup. Ct. Aug. 21, 200B), stands only for the proposition that a New York cho -of law provision in a contract may not apply to tort claims based on the actions of i the defendant before that contract was executed. not inform this dispute because Argus' ch. 9 Schimmel does claims are not based upon Siemens' pre-Merger Agreement condudt; Siemens' 8 submiss of indemni cation claims pursuant tp and after the date of the Merger Agreement is what is at issu . Plymack v. Copley PharITl.3.ceutical, Inc., No. 93 Civ. 2655 (KMW) , 1995 WL 606272, at *4-*5 (S.D.N.Y. ct. 12, 1995), ! applies the uncontroversial princip on al that a ch. 93A claim bas will be treated as gations of claim for provision. As purposes of applying a contractual choice-of-l stated above, however, the al ions Argus purportedly support its ch. 93A aim descr of contract, not lleged brea stances of fraudulent conduc s As such, Plymack also provides no support to Argus. In Kitner v. CTW Transport, Inc., 53 Mass. App. Ct. I 741, 747, 762 N.E.2d 867 (Mass. App. Ct. 2002), the Court a irmed a judgment that fendant atedi ch. 93A notwithstanding a North Dakota choice-of law provision parties' contract where the jury held that the the efendant had not breached the contract, but had committed a negligent srepresentat Here, unlike the pIa iff in Kitner premises its ch. 93A claim entirely on alleged ~reaches Merger Agreement, and advances no non-conclusorly all Argus of the ions that could in any way support a finding that Siiemens owed a 9 separate duty, made a negligent misrepresentatton or committed any other tort. Siemens' submission of indemnificati~n to the procedures set forth in the Me claims pursuant r Agreement for submitting such claims fails to bring the alleiations of the Complaint outside of a breach of contract clai, and transform them into a tort claim. See Red rave v. Bosto Orchestra, Inc., 557 F. Supp. 230, 238 (D. Mas. 1983) ("A breach of contract is not, standing alone, a tdrt . [a]nd it cannot be converted into a tort merely by a1taching to the contract, or the breach, new labels that sound in tort. tI ). The allegations set forth in support .of Count VIII establish that t basis for Argus' ch. 93A clJim is that Siemens allegedly did not comply with §§ 13.3(a) and 13.4 of the Merger Agreement, that Siemens' indemnificatio~ prevail, and that Siemens asserted such claims will not aims terelY in an attempt to elicit a payment from the Holdback F nd the parties i put into escrow to ensure that the sellers could discharge their indemnity obligations. Because those allegatio~S solely invoke the parties' contractual undertakings, Argus' ch. 93A claim is I governed exclusively by New York law, as agreed to in the Merger 10 Agreement. Cf. Ne. Data Sys., Inc. v. Computer Sys. Co., 986 F.2d 607, C. J. ) MCDonnel~ Douglas 609 (1st Cir. [993) (Breyer, (California choice-of-law clause precluder ch. 93A claim where "contract violations [we]re essential elements" of the claim) . In addition, even if the Merger Agree~ent's preclusive New York choice-of-law clause does not apply :1.count VIII, the Complaint Is to plead a viable ch. 93A c According to Argus, Siemens "has eng~ged in a pattern of 'unscrupulous' behavior" falling wi thin the iambi t of ch. 93A, and "concoct baseless indemnification Claims Ipreventing t distribution of the Holdback Fund to its sole purpose of extracting unwarranted Benef~ciaries i concess~ons for t from [Argus], namely, a settlement of those wholly meritless Claims." (Opposition p. 8). Argus has stated the follo~ing instances to support the inference of alleged unscrupulous lehavior: (i) Siemens' 'refusal to provide any meaningful explanation of or support for the Claims 1t has asserts'; (ii) Siemens' 'concession that at least two of the Claims initial assert were wholly1without support or were vastly overstated'; 11 (iii) Siemens' 'silence on the subject of indemnification r nearly two years after the merger, until just two days prior to the expiration of cation notice period'i and (iv) Siemens' il[ure] to demonstrate, to allege, that suf any damages 0 incurred any liabil a result of s ch Claims. ' Id. p. 9. First, Argus' assertion that the mat rials provided by Siemens are insufficient to support its claims for indemnification turns upon this Court's interp etation of §§ 13.1, 13.3, and 13.4 of the Agreemen Siemens' documentary proffer is Agreement. pr~vided back-up Whether the mAterials provided by Siemens - and those that will be provided of this case and whether ent und r the Merger Argus has conceded that S support for each of its claims. I prove its entitlement the pendency the Holdback is a matter of interpretation of the parties' under s presented. Second, Argus' attempt to leverage S willingness to compromise the value of its cla sett is irrelevant. s' sake That Siemens and Argus tentatively 12 does no agreed to settle two of Siemens' cIa Siemens' "bad fa h" in initially asserting tho e claims and constitutes a settlement offer by S Fed. R. Evid. 408. Co. , Inc. v. Cir. 1989) evidence (Opposition p. 5 n.l). Ltd. Stores, Inc., 865 F.2d Tre~or 50~, Sportswear 509 10 (2d (settlement negotiations are inadmislible if offered to prove or sprove the validity of a party's because of Fed. R. Evid. 408's "public policy of encouragi and avoiding wasteful litigation"). is widely encouraged by the Madi See, e.g., 525 F. Supp. 2d 364, (" [TJhe policy of Rule 408, s Pre-litiga ion compromise ral courts and finding of "unscrupulous" behavior. 2007) by ns exprebsl y protect annot support a rs v. (S.D.N.Y. . is base~ on the notion that settlement negotiations are to be encouraged, that the use of settlement discussions in litigation will mare parties reluctant to engage in such negotiations, and that settlement o avoid 1 a case and demands are too tightly bound to igation to cast much light on t incentive to lying merits any event."). Third, Siemens's submission of its within the prescribed two-year time "bad faith." emnification d does not Indeed, to accept Argus' argument would 13 be tantamount to finding that any plaintiff claim on the last day or two before the limitations did so in bad th~t runnin~ asserted a of a statute of 1 even ith. Additionall Y assuming that Siemens submitted indemnification claims tn "bad prior to the expiration of the claim period, that wrongdoing still would constitute only a not a tort because, pursuant to § indemnification claims in "good ith" leged of contract and breac~ 13.4(b), sUbJission of ith" is an elpresslY agreed- upon contractual obligation. Fourth, Argus' contentions has not suffered any damages is contradicted by the ei~ht (8) counterclaims asserted against Argus, each of hich alleges that Siemens suffered damages resulting from Argus' failure to acknowledge the idity of its indemnificatio The law is well-sett that "[aj claims. br~aCh without more, does not violate chapter 93A." Callahan v. Harvest Bd. Int'l, Inc., 138 F. SUpp. 2d 147, 2001); L of contract 6 (D. Mass. chards Int'l, Ltd. v. Ashworth, Inc., 132 F.3d 111, 115 (1st Cir. 1997) (same). See also Whit!insville Plaza, i Inc. v. Kotseas 1979) (bald 378 Mass. 85, 100-01, 390 N.E.2d 243 (Mass. legations that defendants' breaCl of contract 14 constitutes "unfair acts and practices" cient to support a claim under ch. 93A). The Complaint lacks any allegations 10 support the creation of an extra-contractual duty between the parties or i that Siemens's "knowingly and willfully" breacHed the Merger Agreement by its act of submitting inctemnifica1ion claims pursuant to Article XIII. The cases Argus cites in support of ~ts opposition to the instant motion indicate the absence of facJual allegations in this Complaint to support a ch. 93A claim. See Opposition pp. 8-9 (citing Anthon's Pier Four, Inc. v. H C Assocs., Mass. 451, 474 76, 583 N.E.2d 806 (1991) both parties to a transaction are 411 (in situations where sophisticate~ entities (such as here), claimant is required to plead a heightened level of "rascality," such as the knowing or willful use, supported by factual allegations, of a pretext to coerce higher i compensation) i Arthur D. Little, Inc. v. Dooyan 47, 52 53 (1st Cir. 1998) (defendant articulate in its internal year-end bus purposefully re ., 147 F.3d and expressed ss report that if was sing to pay its consulting invoices with hope that creditors would accept discounted patents in lieu of 15 litigating the full amount); Crnt:Y. Builders, I+. v. Indian Motorcycle Assocs., N.E.2d 964 Inc., 44 Mass. App. Ct. 537i, 557-59, (Mass. App. Ct. 1998) 692 (finding that the defendant acted in bad faith where the defendant made ab~olutely towards abiding by the terms of the contract, behavior amounting to "more than mere ~nd non-paym~nt no steps exhibited of a debt"); Datacomm Interface, Inc. v. Computerworld, Inc.!, 396 Mass. 760, 778-779, 489 N.E.2d 185 (1986) (finding liabil~ty against the plaintiff upon learning that the plaintiff misjepresented that possessed a carbon copy of a circulation Ii t that was the central basis for the counter-claiming defenda1t to pursue settlement negotiations); Marram v. Kobrick ofJshore Fund, Ltd. , 442 Mass. 43, 61-63, 809 N.E.2d 1017 (2004) (i1 a securit s fraud case, allowing a claim to proceed based Jpon specific evidence pled in the Complaint that the Plaintl'ff justifiably relied upon defendant's plainly erroneous miss atements made to I the investor-plaintiff both before and after hr· invested in the fund)). These cases either expressly state or implicitly find ! that allegations amounting to fraud or knowing misrepresentation or bad faith are required under ch. 93A and, a mere breach of contract does not suffice. 16 stated above, Here, Argus has Siemens engaged in any iled to allege adeqpately that rm of unfair or decePt~ve acts or Count VIII is therefore dismissed . . practices. Conclusion Based on the conclusions set forth above, the motion of Siemens is granted and Count VIII of the ComPlaint is dismissed with leave granted to replead within 20 days. It is so ordered. New York, NY September "'0"3 2011 i U.S.D.J. 17
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