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Triumph Hospitality, LLC v. Construction Management, Inc.

United States District Court, M.D. Tennessee, Nashville Division

August 15, 2019



          Aleta A. Trauger Judge

         Before the court is the defendants' Motion to Dismiss (Doc. No. 7), which seeks the dismissal of several of the claims asserted in plaintiff Triumph Hospitality, Inc.'s Corrected First Amended Complaint (Doc. No. 6) against defendant Construction Management, Inc. (“CMI”) and dismissal of all claims asserted against defendants William Coulson and Dustin Geditz in their individual capacities. In its Response (Doc. No. 17), the plaintiff voluntarily dismisses (without prejudice) its claims for breach of contract and breach of the covenant of good faith and fair dealing against defendants Coulson and Dustin. Despite some ambiguity, addressed herein, it also appears to voluntarily dismiss its claim for procurement of breach of contract. Otherwise, it opposes the motion and posits, in the alternative, that it should be permitted to again amend its Complaint under Rule 15 of the Federal Rules of Civil Procedure.

         For the reasons set forth herein, the plaintiff's motion to amend its pleading will be granted, and the defendant's motion will be granted in part and denied in part as moot.

         I. Procedural Background

         Triumph initiated this action on April 9, 2019 by filing a Verified Complaint in the Chancery Court for Montgomery County, Tennessee, naming CMI and Coulson as defendants. The defendants removed the case to this court on April 30, 2019, on the basis of diversity jurisdiction. (Doc. No. 1). Triumph promptly filed a First Amended Complaint, and then a Corrected First Amended Complaint (hereafter “Complaint”), adding defendant Dustin Geditz and lengthening the already lengthy pleading by an additional nine pages.

         Triumph brings numerous claims for relief, [1] largely without distinguishing which defendants are the target of which claims. The plaintiff seeks declaratory relief, damages, costs, attorney's fees, and pre- and post-judgment interest. In lieu of answering, the defendants filed their Motion to Dismiss under Rule 12(b)(6), seeking dismissal of the claims for: (1) intentional misrepresentation/fraud and civil conspiracy (Count III); (2) fraud in the inducement (Count IV); (3) negligent misrepresentation (Count V); (4) breach of fiduciary duty (Count VI); (5) procurement of breach of contract (Count VII); (6) violation of Tenn. Code Ann. § 62-6-103 (Count XI); (7) violation of the Tennessee Consumer Protection Act (Count XII); (8) piercing the corporate veil (Count XIII); (9) “misrepresentation by concealment” (Count XIV); and (10) rescission (Count XV). In addition, they seek the dismissal of the claims for breach of contract (Count VIII) and breach of the covenant of good faith and fair dealing (Count IX), to the extent these claims are asserted against defendants Coulson and Geditz.

         In its Response in Opposition to Defendants' Motion to Dismiss (Doc. No. 17), the plaintiff agrees to voluntarily dismiss without prejudice, pursuant to Rule 41(a)(1), its claims for breach of contract and breach of the covenant of good faith and fair dealing against Coulson and Geditz and the claim for procurement of breach of contract against all defendants. Otherwise, the plaintiff insists that its claims are adequately pleaded and, in the alternative, moves for leave to amend the Complaint to plead with more particularity any claims the court finds are inadequately supported. The defendants have filed a Reply (Doc. No. 18), arguing that the plaintiff's Response simply ignores the governing legal standards pertaining to pleading.

         II. Factual Allegations

         Triumph alleges that it is a Tennessee limited liability company in the business of hotel development and that it owns and operates the Sleep Inn (the “Hotel”) located at 230 Cracker Barrel Drive, Clarksville, Montgomery County, Tennessee. CMI is a South Dakota corporation with its principal place of business in South Dakota. Coulson and Geditz are residents of South Dakota and CMI's incorporators.

         Triumph entered into a contract (“Contract”) with CMI in September 2016, pursuant to which CMI was to construct the Hotel in Clarksville for approximately $5.8 million. (See Contract, Doc. No. 1-2, at 70.)[2] Triumph states, without explanation, that “[d]efendants did not allow Triumph to negotiate the terms of the Contract.” (Compl. ¶ 63.) The Contract was a “cost-plus” agreement, meaning that Triumph would reimburse CMI for all actual costs of construction and pay a contractor's fee of 9% above that total for “overhead and profit and an additional supervision fee.” (Compl. ¶ 59.) Triumph generally alleges that CMI was not licensed to engage in the construction of multi-million-dollar projects in the state of Tennessee; that the defendants, acting collectively, fraudulently represented that it was so licensed; and that the defendants fraudulently induced the plaintiff to contract with CMI to build the Hotel and then failed to fulfill their obligations under the Contract.

         More specifically, Triumph alleges that CMI was incorporated in the state of South Dakota in March 2015. (Compl. ¶¶ 19, 22; Certificate of Incorporation, Doc. No. 1-2, at 40, 41.) The Articles of Incorporation identify both Coulson and Geditz as Incorporators of CMI. (Compl. ¶¶ 20, 21; Doc. No. 1-2, at 42.) Coulson is also identified in various corporate filings as the registered agent, president, director, and sole shareholder. (Compl. ¶¶ 20, 21; Doc. No. 1-2, at 41, 42, 44.)

         On April 20, 2015, the defendants made an initial filing with the Tennessee Secretary of State to register CMI to do business in Tennessee and, on the same date, applied for a general contractor's license with the Tennessee Board for Licensing Contractors (the “Board”). (Compl. ¶¶ 31 and 32; Doc. No. 1-2, at 50-54 (Contractor's License Application).) In the space on the Application for identifying the “Monetary Limit Requested (size of contracts), ” someone initially wrote “unlimited, ” marked that out and wrote “$500, 000.00” just above it, and then marked out that figure and wrote $284, 000.00, with illegible initials scribbled next to the last change. (Doc. No. 1-2, at 51.)

         Although the Complaint broadly refers to the “defendants, ” the Contractor's License Application identifies CMI as the applicant whose name should appear on the license; William Coulson is identified as the “Qualifying Agent, ” 100% owner, and president of CMI; and Dustin Geditz is identified as a qualifying agent or employee, and his name is designated to be on the license based on his contracting experience. (Doc. No. 1-2, at 50-53.) Both Dustin Geditz and William Coulson executed the Tennessee Contractor's License Affidavit that is incorporated into the Contractor's License Application, and the packet of documents submitted with the Application also includes a Power of Attorney executed by Coulson and appointing Geditz as Project Manager and Power of Attorney. (Doc. No. 1-2, at 56.)

         In the Affidavit, both Coulson and Geditz attest, among other things, that CMI had “NOT bid, offered to engage or performed any construction in the State of Tennessee, where the amount of the contract was $25, 000 or more, or in the case of those domiciled in non-reciprocal states, $2, 500, as would require a contractor's license to engage in contracting.” (Doc. No. 1-2, at 55; Compl. ¶ 33.) Triumph contends that this statement was false, because the defendants had already entered into a contract and “pulled a permit” to build a four-story hotel in Nashville, Tennessee in December 2014 (Compl. ¶ 29; Doc. No. 1-2, at 46), even before CMI was incorporated in South Dakota.

         On May 20, 2015, Coulson, on behalf of CMI, filed a Hardship License Request (“hardship request”), representing that it would pose a hardship on the owner of a project CMI wanted to bid for to wait until the next scheduled Board meeting for approval of CMI's license application. (Doc. No. 1-2, at 58.) The originally requested monetary limit on the hardship request was “unlimited, ” and Colson represented that CMI had not actually bid on or performed work without the appropriate license. (Doc. No. 1-2, at 58.) Coulson, on behalf of CMI, submitted a revised hardship request, pertaining to the same project, on June 29, 2015. The monetary limit requested on the revised application was $284, 000. (Doc. No. 1-2, at 60; Compl. ¶ 36.)

         By letter dated June 30, 2015 (“hardship license letter”), the Board granted the hardship request and authorized CMI to bid and perform work on construction projects in Tennessee on contracts valued at $284, 200 or less. The qualifying agent identified on the license was Dustin Geditz; the expiration date was July 31, 2017. (Doc. No. 1-2, at 62; Compl. ¶ 39.)

         The plaintiff alleges that, upon discovering that “they” were going to receive a license with a $284, 200 monetary limit, Coulson and Geditz conspired together to defraud the local permitting offices in Tennessee “and all potential owner/developers” by agreeing to alter, and actually altering, “their” hardship license letter to reflect an “unlimited” budget amount and using that document to induce builders to contract with them on projects well over the limitation established by CMI's license. They acted on that conspiracy by altering the license letter accordingly. (Compl. ¶¶ 41-44; Doc. No. 1-2, at 67, 96-99; see also Doc. No. 1-2, at 100-30 (Board Request for Summary Suspension of CMI's license, with attached supporting exhibits).) In further perpetration of the conspiracy, the “defendants” falsely advertised on CMI's website that “We are either licensed or capable of licensing in all lower 48 states.” (Compl. ¶ 48; Doc. No. 1-2, at 69.)

         The Complaint alleges that Coulson fraudulently represented to Triumph that CMI was a board qualified contractor, licensed to build hotels in Tennessee with an unlimited budget. (Compl. ¶ 45.) The Complaint does not allege when this representation took place or in what context. The Complaint states very generally that the “defendants” used the same falsified license to induce Triumph to enter into a contract with “it, ” presumably meaning CMI (Compl. ¶ 46), and that the “defendants” collectively made fraudulent representations and held “itself” out to Triumph to be a licensed general contractor qualified to construct a multi-million-dollar hotel (Compl. ¶ 49). The “defendants” bid on Triumph's project, and Triumph, in reliance upon representations by the “defendants, ” ultimately awarded the project to “the defendants” and entered into the Contract for the construction of the Hotel. (Compl. ¶¶ 50, 51.) The parties executed the Contract on September 1, 2016 for the construction of a $5.8 million hotel in Tennessee. (Compl. ¶ 69; Doc. No. 1-2, at 70-95.) The Contract itself does not incorporate any representations regarding CMI's licensure status.

         Although Triumph alleges numerous problems with the Contract, the construction, and the end product, it received a certificate of occupancy for the Hotel sometime in September 2018.

         In October 2018, after Triumph's relationship with CMI had largely concluded, a complaint against CMI was filed with the Board, alleging that CMI was building in Tennessee without the required license. (Compl. ¶¶ 110-11; Doc. No. 1-2, at 96-99.) As a result, the Board discovered that CMI had altered its hardship license letter in order to pull permits and engage in construction projects in excess of the monetary limit imposed by its license. (Compl. ¶ 112; Doc. No. 1-2, at 100-30.) CMI's license was suspended. (Compl. ¶ 114.)

         CMI voluntarily entered into a Consent Order before the Board, dated January 30, 2019, which adopted findings of fact, including that: (1) CMI had entered into several contracts to build hotels over the course of the two years preceding November 27, 2018; it had acquired its contractor's license with a monetary limit of $284, 200 on July 29, 2015; CMI altered its hardship license letter to show the monetary limit as “unlimited”; CMI had used the fraudulent letter to mislead codes departments into issuing permits that exceeded CMI's actual monetary limit; CMI's contractor's license was renewed on July 19, 2017 with the same $284, 200 monetary limit; based on CMI's financial statements, the company lacked the financial solvency to contract projects over $284, 200. (Doc. No. 1-2, at 136-37.) Based on CMI's violation of Tenn. Code Ann. § 62-6-103(a)(1) and the Board's finding that it posed an immediate danger to the health, safety and welfare of the citizens of the State of Tennessee, CMI's contractor's license was immediately and summarily suspended for a period of six months, effective November 27, 2018. (Doc. No. 1-2, at 138-39.) The Consent Order imposed a civil penalty and other restrictions. Triumph alleges that the “defendants” kept illegally operating in Tennessee, even following the suspension of CMI's license. (Compl. ¶ 119.)

         III. Legal Standards

         In deciding a motion to dismiss for failure to state a claim under Rule 12(b)(6), the court will “construe the complaint in the light most favorable to the plaintiff” and “accept its allegations as true.” Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007); Inge v. Rock Fin. Corp., 281 F.3d 613, 619 (6th Cir. 2002). Unless additional pleading requirements specific to the plaintiff's claims say otherwise, the Federal Rules of Civil Procedure require only that a plaintiff provide “a short and plain statement of the claim that will give the defendant fair notice of what the plaintiff's claim is and the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47 (1957). The court must determine only whether “the claimant is entitled to offer ...

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