Co-authored by Jason Clouser.
The U.S. District Court for the Eastern District of Pennsylvania granted a motion to dismiss a fraud claim against two corporate officers in a case arising out of a failed business relationship between two companies that sell products used in fundraising efforts.
Cherry Bros., LLC (Cherrydale) filed a two count complaint alleging breach of contract and fraud against Club’s Choice; Richard McHugh, the President of Club’s Choice; and Glen McHugh, its Vice President. Cherrydale alleged that the parties entered into verbal and written agreements by which they would sell each other’s products and provide each other with certain services. The McHughs moved to dismiss the fraud count arguing that the plaintiffs failed to plead facts sufficient to support a fraud claim as required by Rule 9(b) of the Federal Rules of Civil Procedure and that Cherrydale had also failed to plead facts to support a claim to pierce the corporate veil.
Cherrydale argued that it did not seek to pierce the corporate veil, but rather had a viable claim against the individual defendants because the complaint described how the McHughs individually engaged in fraudulent conduct. In support of its fraud claim, Cherrydale alleged that the McHughs made materially false representations and directed their employees to do the same. The court disagreed and ruled that Cherrydale’s complaint did not satisfy the heightened pleading requirements of Rule 9(b), pointing out that the complaint omitted at least one key particular with respect to each of the alleged misrepresentations, such as who made the statements, when they were made or to whom the statements were directed. The court also held that several of Cherrydale’s allegations were so intertwined with the contractual relationship between the parties that they could only be considered on the breach of contract claim and not in support of any tort claims against the individual defendants.
Cherry Bros., LLC v. Choice Products USA, LLC, 2011 WL 5130079 (E.D. Pa. Oct. 28, 2011).