WARWICK DEVELOPMENT LLC v. MOLLY MCGRUDER

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

WARWICK DEVELOPMENT, LLC,

Plaintiff-Appellant,

v.

MOLLY MCGRUDER,

Defendant-Respondent.

_____________________________

May 28, 2014

Argued March 12, 2014 Decided

Before Judges Grall and Waugh.

On appeal from the Superior Court of New Jersey, Law Division, Camden County, Docket No. L-0409-13.

Thomas J. Hagner argued the cause for appellant (Hagner & Zohlman, attorneys; Mr. Hagner and Andrew T. McGuire, on the brief).

Katherine D. Hartman argued the cause for respondent (Attorneys Hartman, Chartered, attorneys; Ms. Hartman, on the brief).

PER CURIAM

Plaintiff Warwick Development, LLC (Warwick) filed a single-count complaint alleging fraud by its employee, defendant Molly McGruder. In lieu of an answer, McGruder moved to dismiss for failure to state a claim, R. 4:6-2(e), and Warwick moved for leave to file an amended complaint. The trial court denied the motion to amend and dismissed without prejudice. For the reasons that follow, we remand with direction for the court to permit plaintiff to file an amended complaint in conformity with this opinion.

After considering the initial and proposed amended complaint, the trial court concluded that Warwick had framed a suit for fraud based on nothing other than McGruder's doing an "awful job" and not "accomplishing the tasks that she was hired to do." Noting that this is not a case in which an employer charges an employee with theft of goods or money, using or consuming the employer's property for personal benefit, or taking the employer's customers, the court indicated that termination was the employer's only remedy. Nevertheless, the order dismissing without prejudice left Warwick with the option of filing another complaint adequately stating a claim of fraud.

In reviewing the trial court's dismissal or denial of leave to amend a complaint for failure to state a claim, we apply a plenary standard of review and owe no deference to the trial court's conclusions. Rezem Family Assocs., LP v. Borough of Millstone, 423 N.J. Super. 103, 114 (App. Div.), certif. denied and appeal dismissed, 208 N.J. 366 (2011). Objections to the filing of an amended complaint for failure to state a claim are considered under the same standard. We must "examin[e] the legal sufficiency of the facts alleged on the face of the complaint[,]" Printing Mart-Morristown v. Sharp Elec. Corp., 116 N.J. 739, 746 (1989), giving Warwick the benefit of "'every reasonable inference of fact' and read[ing] the complaint in the light most favorable to plaintiff." Jenkins v. Region Nine Hous. Corp., 306 N.J. Super. 258, 260 (App. Div. 1997) (quoting Printing Mart-Morristown, supra, 116 N.J. at 746), certif. denied, 153 N.J. 405 (1998). "The examination of a complaint's allegations of fact required by the aforestated principles should be one that is at once painstaking and undertaken with a generous and hospitable approach." Printing Mart-Morristown, supra, 116 N.J. at 746.

The focus is on the elements of the claim asserted, not the novelty of the fact pattern. Fraud has "five elements: a material misrepresentation by the defendant of a presently existing fact or past fact; knowledge or belief by the defendant of its falsity; an intent that the plaintiff rely on the statement; reasonable reliance by the plaintiff; and resulting damages to the plaintiff." Liberty Mut. Ins. Co. v. Land, 186 N.J. 163, 175 (2006); see also Shebar v. Sanyo Business Systems Corp., 218 N.J. Super. 111, 117-18 (App. Div.), aff'd, 108 N.J. 667 (1987). "Silence, in the face of a duty to disclose, may be a fraudulent concealment." Berman v. Gurwicz, 189 N.J. Super. 89, 93 (Ch. Div. 1981), aff'd o.b., 189 N.J. Super. 49 (App. Div.), certif. denied, 94 N.J. 549 (1983).

We take the facts as asserted in the proposed amended complaint, because it is the more complete of the two complaints presented to the trial court. Viewing the complaint liberally and hospitably, we find Warwick hired McGruder as an independent contractor to serve as its "site supervisor/construction manager" in February 2010 and after September 2011 retained McGruder as a "W-2 employee." Before Warwick changed McGruder's status from independent contractor to employee, she represented to Warwick, sometime in September 2011, that "all of her duties were being performed without complication so Warwick made McGruder a W-2 employee." (Emphasis added).

McGruder's duties included "supervising the construction of residential homes, coordinating subcontractors, timely completing the construction of homes to meet projected delivery dates, performing pre-closing and post-closing inspections of completed homes to ensure that homes were delivered without defects [and] addressing consumer complaints regarding construction defects within 30 days of receipt of said complaints." "As part of [McGruder's] responsibilities, [she] was required to report, on at least a weekly basis, the status of ongoing construction of homes and specifically the existence of and substance of pre-closing inspection punch lists and post-closing inspection punch lists."

According to Warwick, McGruder was "directly involved in the performance of her position as site supervisor and had full knowledge of all relevant facts relating to services performed and reported to have been performed." Warwick asserted that McGruder had not performed those duties. She "failed to diligently supervise the construction; failed to report activities to Warwick on approved company forms; allowed homeowner punch lists to remain incomplete for periods exceeding 180 days instead of 30 day completions with all punch lists remaining open at the time she left; and failed to inspect jobs so that quality standards were met."

Warwick further alleged that McGruder "fraudulently concealed and/or failed to disclose misrepresented material facts pertaining to the status of construction of the homes." McGruder advised Warwick "that there were no known workmanship deficiencies despite the existence of an abnormal amount of such problems, both in the quantity, and also the severity of problems."

Identifying seventeen homes, Warwick alleged:

With full knowledge that she had received and was in possession of a large amount of punch lists, many of which had been ignored, and many of which included major workmanship deficiencies, including those structural in nature, [McGruder] reported

a. That the number of punch lists [was] not out of the ordinary;

b. That the construction workmanship issues identified on the punch lists were being attended to on a timely basis;

c. That there were no major workmanship issues including but not limited to structural problems contained on any punch lists; and

d. The amount of workmanship issues identified on punch lists and the types of workmanship issues contained on any such punch lists were customary and normal.

In addition, Warwick provided examples of "gross misrepresentation": reporting successful completion of construction despite the fact that the owner had submitted a four-page punch list that was never addressed; leaving another homeowner's punch list unaddressed for a year after closing; failure to report to Warwick "numerous" complaints of severe problems that existed for excessive periods of time that McGruder never addressed "and, in fact, which had been denied by her."

Warwick sought two types of damages for "fraudulent concealment/failure to disclose/misrepresentations." Specifically, the employer requested recoupment of $65,000 Warwick paid McGruder for her services; and damages for "economic loss and detriment" including "increased construction costs; loss of profit; loss of goodwill and other monetary damages" Warwick suffered and continued to suffer as a direct and proximate result of McGruder's conduct.

Even read with the liberality required, Warwick's proposed amended complaint was inadequate to state a claim with all of the requisite elements of fraud. True, Warwick's proposed amended complaint suggested an affirmative misrepresentation material to Warwick's decision to change McGruder's status from that of independent contractor to employee, and it also suggested that Warwick relied upon that misrepresentation. We refer to the allegation that McGruder, while serving as an independent contractor, reported that she was performing "all of her duties . . . without complication so Warwick made McGruder a W-2 employee." (Emphasis added). Also true, Warwick's proposed amended complaint suggested concealment and misrepresentation about punch lists McGruder was duty-bound to report and Warwick's reliance upon those misrepresentations.

There is some authority for concluding that fraud pertinent to an employment relationship is actionable. In Shebar, we held that an action for fraud would be supported by proof that Shebar "submitted his resignation and told his Sanyo superiors that he had accepted" an offer from Sony and proof that "Sanyo induced him to stay and to forego the Sony opportunity with the then intention of replacing him in the near future." 218 N.J. Super. at 117. We reasoned that Shebar was asserting that "Sanyo made the false promises and representations on which [Shebar] relied to his detriment, knowing them to be false, intending him to rely upon them, and understanding that if he did rely he would be damaged, as he ultimately was, both by giving up the Sony employment and by losing his Sanyo employment." Ibid. In our view, there is no basis for distinguishing employers and employees when it comes to actionable fraud material to either's decision about the employment relationship. Even in the absence of fraud, an employer who "has been compelled to pay damages to a third person for the negligence of his . . . employee" can sue the employee for indemnification, assuming no negligence on the part of the employer. Erlich v. First Nat'l Bank of Princeton, 208 N.J. Super. 264, 306 (Law Div. 1984) (quoting Frank Martz Coach Co. v. Hudson Bus, etc. Co., 23 N.J. Misc. 342, 346 (Sup. Ct. 1945) and citing Schramm v. Arsenal Esso Station, 124 N.J. Super. 135, 138 (App. Div.), aff'd o.b., 63 N.J. 593 (1973)).

Nor do we see a basis for concluding that an employee is immune from suit for fraud against an employer in connection with the performance of his or her duties. Applying New Jersey law, the Federal District Court for the District of New Jersey found that an employer established fraud by its employees who falsely represented "that it was necessary for" the employer "to purchase equipment from" a company in which the employees had an undisclosed interest, although the employees "had every ability to do for [their employer] what they had done for [the other company] in terms of purchasing equipment directly from manufacturers." Vibra-Tech Eng'rs, Inc. v Kavalek, 849 F. Supp. 2d 462, 494 (D.N.J. 2012). The court determined that the employees "knew that [their] statements were false and that they knew the statements would induce [their employer] to purchase equipment from [the company with which they were associated], and at a much higher cost than could be had otherwise." Id. at 495.

The difficulty here is that Warwick pled no facts that permit an inference of two critical elements of fraud. We refer to Warwick's obligation to prove: 1) McGruder's intention for Warwick to rely on her representations in offering her employment status or dealing with homeowners; and 2) the reasonableness of Warwick's reliance on McGruder's self-evaluation in offering her employee status or her representations about punch lists in dealing with homeowners. Neither of Warwick's complaints alleges that McGruder intended Warwick to rely on her representations, and neither alleges that Warwick's reliance was reasonable. Moreover, the facts pled do not give rise to an inference of either of those essential elements. Accordingly, the trial court properly dismissed the complaint without prejudice for failure to state a claim. Although we also agree that the judge properly denied Warwick's motion to file an amended complaint that did not state a claim, because the fundament of a claim was suggested, the judge should have given Warwick the opportunity to file an amended complaint. Printing Mart-Morristown, supra, 116 N.J. at 746. Our disposition of the appeal makes it unnecessary to consider other arguments the parties have raised. We have, however, considered them and determined that they have insufficient merit to warrant any additional discussion.

R. 2:11-3(e)(2)(E).

Remanded.