CRA International, Inc. v. Painter (Lawyers Weekly No. 12-039-17)
COMMONWEALTH OF MASSACHUSETTS
SUFFOLK, ss. SUPERIOR COURT.
1684CV02417-BLS2
____________________
CRA INTERNATIONAL, INC.
v.
DONALD J. PAINTER
____________________
MEMORANDUM AND ORDER ALLOWING PLAINTIFF’S MOTION FOR JUDGMENT ON THE PLEADINGS AND MOTION TO DISMISS COUNTERCLAIM
This lawsuit arises from CRA International, Inc.’s short-lived employment of Donald J. Painter. CRA seeks a declaration that, because Mr. Painter worked for CRA for less than a year, Painter is contractually obligated to repay his $ 30,000 signing bonus and a $ 900,000 loan, pay all interest that has accrued on that loan, and reimburse CRA for reasonable attorneys’ fees and expenses incurred to collect that loan. Painter asserts that his employment agreement and promissory note were induced by intentional fraud or negligent misrepresentations and are therefore “invalid” and unenforceable. He also asserts a counterclaim for fraud and seeks leave to amend facts alleged in his counterclaim.
The Court concludes that CRA is entitled to the dismissal of Painter’s counterclaim and that Painter’s proposed amendment of his counterclaim would be futile. It also concludes that, given the facts admitted by Painter in his answer and the failure of his fraud in the inducement defense, CRA is entitled to judgment in its favor on its claim for declaratory judgment. The Court will allow CRA’s motion for judgment on the pleadings and to dismiss Painter’s counterclaim, deny Painter’s motion to amend his counterclaim, deny CRA’s motion to strike Painter’s jury demand as moot, and order the entry of a declaratory judgment in CRA’s favor.
1. CRA’s Motion to Dismiss the Counterclaim. Painter’s counterclaim for fraud fails as a matter of law because it does not allege any facts plausibly suggesting that CRA made a false statement of material fact to Painter or that CRA failed to disclose some material information that it had a duty to disclose. See generally Lopez v. Commonwealth, 463 Mass. 696, 701 (2012) (to survive a motion to dismiss under Mass. R. Civ. P. 12(b)(6), a complaint or counterclaim must allege facts that, if true, would “plausibly suggest[] … an entitlement to relief”) (quoting Iannacchino v. Ford
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Motor Co., 451 Mass. 623, 636 (2008), and Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). Painter’s proposed amendment to his counterclaim would be futile for the same reasons.
1.1. The Counterclaim Fails to Allege Any Fraud with Particularity. A claim of fraudulent inducement must be alleged with particularity in accord with Mass. R. Civ. P. 9(b). See VMS Realty Inv., Ltd. v. Keezer, 34 Mass. App. Ct. 119, 119-120 (1993). This rule “heightens the pleading requirements placed on plaintiffs who allege fraud and deceit.” Equipment & Systems for Industry, Inc. v. NorthMeadows Constr. Co., Inc., 59 Mass. App. Ct. 931, 932 (2003) (rescript). Thus, “at a minimum,” Painter must support any claim of fraudulent inducement by specifically alleging “the identity of the person(s) making the” allegedly fraudulent “representation, the contents of the misrepresentation, and where and when it took place,” and must also “specify the materiality of the misrepresentation, [his] reliance thereon, and resulting harm.” Id. at 931-932.
Painter’s existing counterclaim is based on two alleged misrepresentations by CRA. Neither is sufficient to support a counterclaim for fraud.
The allegation that CRA told Painter that CRA had “done recent work with a few major clients in the U.S. oil and gas market” is too vague to support Painter’s counterclaim. To state a claim for fraud, a claimant must allege facts plausibly suggesting that the defendant knowingly made a false statement of material fact, that it did so for the purpose of inducing the claimant to act on it, and that the claimant reasonably relied upon that false statement to his detriment. See Masingill v. EMC Corp., 449 Mass. 532, 540 (2007). Vague and general statements cannot constitute an unlawful misrepresentation of fact. Id. at 544 (alleged representation to employee that supervisor will “make you whole” held “too vague” to support a claim for misrepresentation, as a matter of law). It is not reasonable, as a matter of law, to rely upon “vague and indefinite” statements like the one CRA allegedly made regarding recent work. See Martins v. University of Massachusetts Medical School, 75 Mass. App. Ct. 623, 633 (2009).
The further allegation that CRA asked Painter to confirm that he would commit himself to working to grow CRA’s Marakon oil and gas industry consulting
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practice for six to seven years cannot support a counterclaim for fraud. Asking a potential employee about his commitment to a business is not a statement of fact and therefore cannot give rise to a claim for fraud. Cf. Sahin v. Sahin, 435 Mass. 396, 403 (2001) (“statements of opinion or belief as to business operations, made without certainty, do not rise to level of statements of fact and do not constitute fraudulent misrepresentations”).
1.2. The Proposed Amended Counterclaim Would Be Futile. Mr. Painter seeks leave to amend his counterclaim in an attempt to bolster the factual premise for his claim of fraud. The Court will deny this motion because the proposed amendment would be futile, in that the amended counterclaim still could not survive a motion under to dismiss for failure to state a claim upon which relief can be granted. See generally Johnston v. Box, 453 Mass. 569, 583 (2009) (“Courts are not required to grant motions to amend prior [pleadings] where ‘the proposed amendment … is futile.’ ” (quoting All Seasons Servs., Inc. v. Commissioner of Health & Hosps. of Boston, 416 Mass. 269, 272 (1993)); Thermo Electron Corp. v. Waste Mgmt. Holdings, Inc., 63 Mass. App. Ct. 194, 203 (2005) (affirming denial of motion for leave to assert counterclaim that would have been futile); Mancuso v. Kinchla, 60 Mass. App. Ct. 558, 572 (2004) (if amendment to add claim could not survive motion to dismiss, allowing amendment would be exercise in futility).
Painter’s proposed amended counterclaim would augment the factual allegations underlying his counterclaim in two ways. Neither of these additional categories of allegations would state a viable claim for fraud.
First, Painter seeks to allege that CRA withheld material information from him. Specifically, the amended counterclaim would allege that CRA failed to disclose that its prior oil and gas consulting clients were all clients of former CRA employees who no longer worked for the company. It would also allege that CRA failed to disclose material facts regarding the financial condition and performance of its Marakon unit.
These allegations that CRA withheld information from Painter cannot support a claim for fraud because Painter alleges no facts plausibly suggesting that CRA had any duty to disclose that information to Painter. “Fraud by omission requires both concealment of material information and a duty requiring disclosure.” Sahin v. Sahin,
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435 Mass. 396, 402 n.9 (2001). “A duty to disclose exists where ‘(i) there is a fiduciary or other similar relation of trust and confidence, (ii) there are matters known to the speaker that he knows to be necessary to prevent his partial or ambiguous statement of the facts from being misleading, or (iii) the nondisclosed fact is basic to, or goes to the essence of, the transaction.’ ” Knapp v. Neptune Towers Assocs., 72 Mass. App. Ct. 502, 507 (2008), quoting Stolzoff v. Waste Sys. Intl., Inc., 58 Mass. App. Ct. 747, 763 (2003). The amended complaint does not plausibly suggest that any of these circumstances was present here.
The amended counterclaim would not suggest that CRA had a fiduciary or similar relationship with Painter. When a company like CRA tries to recruit an executive like Painter, those negotiations do not establish a fiduciary relationship or some other relationship of trust and confidence that would carry with it a duty on the part of the company to disclose information about its operations and business prospects. Indeed, even once an employment relationship is formed the employer still does not have any fiduciary or other duty to tell its employees or prospective employees information about the employer’s business prospects. See Ross v. Burrage, 233 Mass. 439, 446-448 (1919).
Nor would the amended counterclaim suggest that the allegedly undisclosed information went to the essence of the transaction or caused anything Painter was told to be misleading. According to Painter, CRA made clear that it was not well-established in the United States market for oil and gas consulting firms and that it had no current clients in that market; all that CRA represented was that it had “done recent work with a few major clients in the U.S. oil and gas market.” In Painter’s email communications with CRA before he was hired, which are summarized in the proposed amended complaint and attached to it as exhibits, Painter makes clear he knew that Marakon was not making any money and that Painter would have to land or help land new clients in order to turn it into a profitable business. Painter alleges that he told CRA it would take him at least two years and possibly longer to turn Marakon into a profitable operation.
Since Painter acknowledges that he had years of experience in the field, he “should have inquired” if he was “interested in more specific information.” Knapp,
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72 Mass. App. Ct. at 509. CRA had no affirmative duty to volunteer and provide additional information regarding the weakness of its market position. Id.
Second, Painter also seeks to allege that, during the same conversation when CRA asked Painter to confirm that he would be committed to CRA’s Marakon consulting practice for six to seven years, CRA itself told Painter that it was “definitely committed” to a six to seven year process of growing its oil and gas practice.
These allegations cannot support a claim for fraud because Painter alleges no facts plausibly suggesting that CRA’s stated commitment to its Marakon practice was false when made. To the contrary, the proposed amended counterclaim would allege that in May 2016 CRA “made an abrupt and disappointing decision to dissolve Marakon’s America’s Oil and Gas Practice.” Thus, Painter’s own allegations make clear that CRA changed its mind, not that CRA deliberately misled Painter when it allegedly said in 2015 that it was committed to supporting efforts by Painter to grow the Marakon business.
A plaintiff may base a claim of misrepresentation upon a false promise, rather than a false representation of fact, only if the plaintiff alleges facts plausibly suggesting that that “the promisor had no intention to perform the promise at the time it was made.” See Cumis Ins. Society v. BJ’s Wholesale Club, Inc., 455 Mass. 458, 474 (2009), quoting Yerid v. Mason, 341 Mass. 527, 530 (1960). It is not enough for Painter to allege that CRA promised to keep the Marakon business going and did not keep that commitment, because an “intention not to perform a promise” cannot be inferred merely from later “nonperformance of the promise.” Galotti v. United States Trust Co., 335 Mass. 496, 501 (1957); accord McCartin v. Westlake, 36 Mass. App. Ct. 221, 230 n.11 (1994). “Changing one’s mind is not proof that an earlier statement was false.” Backman v. Smirnov, 751 F. Supp. 2d 304, 316 n.13 (D. Mass. 2010) (Stearns, J.) (applying Massachusetts law).
2. CRA’s Motion for Judgment on the Pleadings on Its Claims. As the plaintiff in this action, CRA may obtain judgment on the pleadings in its favor if, “on the undenied facts alleged in the complaint and assuming as true all the material allegations of fact in the answer, the plaintiff is entitled to judgment as a matter of law.” See United States v. Blumenthal, 315 F.2d 351, 352 (3d Cir.1963); accord, e.g.,
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New Zealand Lamb Co., Inc. v. United States, 40 F.3d 377, 380 (Fed. Cir. 1994). “In other words, if a defendant’s answer admits, alleges, or fails to deny facts which, taken as true, would entitle a plaintiff to relief on one or more claims supported by the complaint, then the plaintiff’s Rule 12(c) motion should be granted.” Lowden v. County of Clare, 709 F. Supp. 2d 540, 546 (E.D. Mich. 2010).1
2.1. Facts Admitted in Painter’s Answer. Mr. Painter has admitted in his answer that the following facts are true.
Painter began interviewing for a job at CRA in March 2015. Ultimately, CRA offered Painter employment as a Vice President in CRA’s Marakon North American management consulting practice, where Painter was to be in charge of building an oil and gas consulting advisory business. Painter accepted CRA’s offer.
CRA and Painter both executed an Offer Letter on or about April 23, 2015. This offer letter stated that Painter’s employment was at will, and that either party could “choose to end the employment relationship at any time and for any reason on sixty days’ written notice. This letter contained an integration clause stating that it “constitutes the entire agreement with respect to this offer of employment with CRA, and supersedes all other prior agreements and understandings, both written and oral, with respect to [Painter’s] employment with CRA.
The offer letter stated that CRA would pay Painter $ 400,000 per year plus a one-time signing bonus of $ 30,000, and that Painter would also be eligible for additional discretionary bonuses. The letter also provided that if Painter’s employment with CRA were to end within twelve months after he first started working at CRA, then Painter would have to repay the entire $ 30,000 signing bonus within thirty days of his departure from CRA.
In addition, the offer letter accepted by Painter provided that CRA would loan Painter $ 900,000 for three years. This was a forgivable loan, with forgiveness conditioned on Painter continuing to be employed by CRA. The offer letter provided that Painter had to repay one-third of the loan principal plus all accrued interest on each of Painter’s first, second, and third anniversaries with CRA, but that those
1 Cf. Smaland Beach Ass’n, Inc. v. Genova, 461 Mass. 214, 228 (2012) (judicial construction of federal rules of civil procedure applies to parallel state rules).
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payments would be refunded and those obligations would be forgiven if Painter was still employed by CRA on each anniversary. It also provided that if Painter’s employment with CRA were to end before the forgiveness of the loan was completed, then Painter would have to repay any remaining unforgiven loan balance, including accrued and unforgiven interest, within thirty days of leaving CRA. In addition, the offer letter provided that if CRA had to initiate collection activities to collect unpaid loan principal or interest, then Painter would be obligated to pay CRA for any reasonable legal fees or expenses incurred to collect the loan. Painter also executed a promissory note reiterating the same obligations to repay unforgiven loan amounts and to compensate CRA for reasonable attorneys’ fees and expenses.
Painter started working for CRA on July 20, 2015. During the spring of 2016 CRA notified Painter that his employment would be terminated. Painter’s employment with CRA ended on July 9, 2016, less than one year after he started working for CRA.
CRA offered Painter a separation package that would include forgiveness of one-third of the $ 900,000 loan principal, all accrued interest on the loan, and the full $ 30,000 signing bonus, in exchange for Painter releasing any claims he may have against CRA. Painter did not accept that offer.
Painter has not repaid the signing bonus or any part of the loan principal or accrued interest.
In June 2016 Painter’s legal counsel sent a demand letter to CRA. The letter asserted that Painter had no obligation to repay his signing bonus or the $ 900,000 loan. It also asserted that CRA had fraudulent induced Painter to join CRA and that Painter had suffered compensable damages as a result.
2.2. CRA Is Entitled to Judgment as a Matter of Law. If Painter’s employment agreement and promissory note are enforceable, then CRA is entitled to recoup the $ 30,000 signing bonus, the $ 900,000 loan, all interest that has accrued on that loan, and any legal fees and expenses that CRA reasonably incurred in collecting the loan principal and interest. Painter concedes that he worked for CRA for less than one year. And the plain terms of the offer letter that Painter accepted provide that Painter must therefore pay or repay these amounts.
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Painter tries to avoid this result by asserting an affirmative defense that CRA fraudulently induced him to enter into this employment agreement in the first place. If Painter had been induced to accept and sign the offer letter by some kind of deliberate fraud, then his employment agreement with CRA would be voidable. See Shaw’s Supermarkets, Inc. v. Delgiacco, 410 Mass. 840, 842 (1991) (“A contract induced by fraudulent misrepresentations is voidable, not void. … The rule applies in the employment context as well.”). As explained above, however, Painter’s counterclaim for fraud fails as a matter of law because Painter does not allege with the requisite particularity that CRA made any fraudulent misrepresentations while recruiting Painter. It necessarily follows that Painter’s affirmative defense of fraudulent inducement fails as a matter of law as well. An affirmative defense of fraudulent inducement must be pleaded with particularity; as a result, “the defense of fraud is not available” to a defendant who fails to state with sufficient particularity “the circumstances constituting fraud.” DiPietro v. Sipex Corp., 69 Mass. App. Ct. 29, 39 (quoting Mass. R. Civ. P. 9(b)), rev. denied, 450 Mass. 1102 (2007).
Nor can Painter avoid his contractual obligations on a theory that he was induced to sign the employment agreement and promissory note by negligent misrepresentations that were not intentionally fraudulent. Painter asserts an affirmative defense that his acceptance of the CRA’s offer was induced by negligent misrepresentations. He was not required to do so with particularity, because under Massachusetts law the heightened pleading requirements of Rule 9(b) do not apply to claims of negligent misrepresentation. See DeWolfe v. Hingham Centre, Ltd., 464 Mass. 795, 798 n.8 (2013) (construing complaint that alleged “material misrepresentation” as stating claim for negligent misrepresentation because “fraud has not been pleaded with sufficient particularity to state a claim for intentional or reckless misrepresentation”). A contract may be voidable if a party was induced to enter into it by a nonfraudulent, negligent misrepresentation of a material fact. See Yorke v. Taylor, 332 Mass. 368, 373-374 (1955); Restatement (Second) of Contracts § 164 and comment b (1981). But Painter’s negligent misrepresentation defense is barred the contractual merger clause, in which Painter agreed that that the written employment agreement superseded any prior understandings with
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respect to Painter’s employment by CRA. Such a provision does not bar a claim or defense of intentional fraud in the inducement, but it does bar claims or defenses of unintentional, negligent misrepresentations of fact. See Sound Techniques, Inc. v. Hoffman, 50 Mass. App. Ct. 425, 429-434 (2000), rev. denied, 433 Mass. 1102 (2001).
In any case, CRA would be entitled to judgment as a matter of law on its affirmative claims as to repayment of the signing bonus and loan even if Painter’s affirmative defenses that he was induced to sign the employment agreement through fraud or negligent misrepresentation were legally viable, which they are not.
Assuming that Painter could prove his affirmative defenses of inducement by fraud or negligent misrepresentation, he could have his entire employment agreement rescinded or he could choose to have the agreement remain in place. But he would not have the option of accepting the parts of the contractual arrangement that he liked and selectively voiding the others. “[U]nless rescinded ‘a voidable contract imposes on the parties the same obligations as if it was not voidable.’” Berenson v. French, 262 Mass. 247, 260-261 (1928), quoting Williston, Contracts, § 15 (1920); accord 27 Williston on Contracts § 69:55 (4th ed. 2003) (though fraud may be a ground to reform a written contract or instrument, fraud perpetrated to induce party to enter into agreement is only ground for rescission, not reformation).
If Painter could prove fraud or negligent misrepresentation in the inducement, he could not rescind his employment agreement with CRA unless he repaid the signing bonus and loan.2 See, e.g., Jurewicz v. Jurewicz, 317 Mass. 512, 517 (1945) (“The plaintiff in rescinding the transaction as voidable for fraud must give up all she received under it.”); Mullen v. Old Colony R. Co., 127 Mass. 86, 89 (1879) (“It is well established that, if a party enters into a contract and in consideration of so doing receives money or merchandise, and afterward seeks to avoid the effect of such contract as having been fraudulently obtained, he must first give back to the other party the consideration received.”).
2 CRA implicitly concedes that Painter would be entitled to retain his $ 400,000 annual salary as fair compensation for his year of work on behalf of CRA. Painter has not claimed or argued that the principle of quantum meruit would also entitle him to keep his $ 30,000 signing bonus or the $ 900,000 loan, which Painter had agreed by contract must be repaid if his employment lasted less than one year.
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In sum, Painter must repay the loan and signing bonus whether his employment agreement is voidable on the ground of fraudulent inducement or not. If Painter had a viable counterclaim for fraud, then he would have a viable defense to CRA’s contract claim for attorneys’ fees and legal expenses. But he would still have to repay the signing bonus and loan. And since the facts alleged by Painter in support of his counterclaim make clear that he has no affirmative defense of inducement by fraudulent or negligent misrepresentation, CRA is entitled to judgment in its favor with respect to its legal fees and expenses as well.
ORDER
Plaintiff’s motion for judgment on the pleadings and motion to dismiss counterclaim is ALLOWED. Defendant’s motion for leave to amend his counterclaim is DENIED as futile. Plaintiff’s motion to strike Defendant’s jury demand is DENIED as moot.
Final judgment shall enter dismissing Defendant’s counterclaim with prejudice and declaring that: (1) Donald J. Painter is obligated to repay to CRA International, Inc., the $ 30,000 signing bonus previously provided to Mr. Painter by CRA; (2) Mr. Painter is also obligated to repay to CRA the $ 900,000 principal amount of CRA’s prior loan to Mr. Painter and is also obligated to pay CRA all accrued interest on that loan amount plus any reasonable attorneys’ fees and other legal expenses that were reasonably incurred by CRA in collecting this loan; and (3) CRA did not engage in unlawful misrepresentation toward Mr. Painter and owes him no compensation for any damages.
April 11, 2017
___________________________
Kenneth W. Salinger
Justice of the Superior Court