Virginia Lawyers Weekly VA Lawyers Weekly
Where a company that provides intellectual property support services was sued for allegedly misrepresenting what it would charge for patent renewal services, but the alleged misrepresentations were only in the parties’ written agreement, and the complaint lacked allegations about the author, content and context of the alleged misrepresentations, the fraud claim was dismissed with prejudice.
Background
Brainchild Surgical Devices LLC is a medical device company that develops medical technologies. It holds patents in the United States and abroad to protect its technologies. Governing regulations require patent holders to pay fees to renew their
patents. To manage these renewal fees, plaintiff enlisted the help of CPA Global Limited.
In its putative class action complaint, Brainchild alleges that CPA and its then-chief executive officer, Simon Webster substantially overcharged Brainchild in violation of the parties’ patent renewal service agreement. Plaintiff’s amended complaint asserts two claims: a breach of contract claim and a fraud claim. CPA has moved to dismiss the fraud claim.
Material facts
Plaintiff’s central allegation is that defendant misrepresented how much plaintiff would be charged. Significantly, though, plaintiff does not allege that defendant made these misrepresentations or omitted information about additional charges anywhere other than in the text of the agreement itself.
The text of the agreement does not amount to evidence that defendant misrepresented or omitted material facts because “[m]erely entering into [a] contract does not mean that Defendant implicitly represented the facts alleged ….” Thus, because plaintiff points to no occasions on which defendant made misrepresentations or omissions other than when entering into the agreement, the court finds that plaintiff does not allege the material facts at issue with sufficient particularity.
Concealment
Defendant asserts that plaintiff’s allegations regarding Webster directing the overcharging scheme, in part, and the other executives’ silent complicity in the scheme do not convey who in fact made the misrepresentations to or who concealed material facts from plaintiff.
Courts typically require a plaintiff to attribute certain misrepresentations or omissions to specific actors when pleading fraud. Plaintiff correctly asserts, however, that some courts have found allegations of fraud sufficient to meet the “who” requirement under Rule 9(b) where the plaintiff identified the person making the misrepresentation merely as a company and its unidentified executives. The cases it cites, however, suggest that courts are more likely to overlook deficiencies in the “who” requirement if the plaintiff specifically identifies the content of the misrepresentations and the circumstances surrounding them. Plaintiff satisfies neither condition here.
Manner
Defendant finally contends that plaintiff does not plead with particularity any facts showing the manner of concealment. The court agrees.
Plaintiff alleges that “Webster used his position … to continue … the scheme of marketing [defendant’s] services as if no overcharging would occur and concealing [defendant’s] plans to overcharge customers once contracts had been signed.” However, that vague reference to defendant’s marketing of its renewal services does not include important specifics, such as what misrepresentations or omissions defendant made in marketing its services, what form the marketing took, who marketed the services and when, if ever, plaintiff saw and relied on defendant’s marketing.
Plaintiff directs the court’s attention to the allegation in the amended complaint that Webster and other executives concealed material facts from plaintiff by issuing opaque invoices that obfuscated defendant’s practice of overcharging customers. However such allegations of post-contractual conduct do not satisfy the requirement of adequately pleading the manner of concealment.
Leave to amend
Plaintiff had two full opportunities to state a claim for fraud with the requisite particularity under Rule 9(b), first in the initial complaint and now in the amended complaint. Plaintiff nevertheless avers that amendment would not be futile here because it can identify which executives communicated the misrepresentations to plaintiff, the approximate date of such pre-contractual communications and the means by which the misrepresentations were communicated.
However, these are among the very same details that the court expressly directed plaintiff to allege when amending the complaint for the first time. Moreover, plaintiff does not indicate that it would be able to allege any occasions on which defendant misrepresented or omitted material facts besides when it entered into the agreement. Accordingly, the court denies plaintiff leave to amend and dismisses Count Two of the amended complaint with prejudice.
Defendant’s partial motion to dismiss granted.
Brainchild Surgical Services Inc. v. CPA Global Limited, Case No. 1:21-cv-554, Jan. 11, 2023. EDVA at Alexandria (Alston). VLW 023-3-015. 12 pp.
