United States District Court, D. Maryland, Northern Division
January 12, 2015
FIDELITY & GUARANTY LIFE INSURANCE CO., Plaintiff,
UNITED ADVISORY GROUP, INC. d/b/a QINTERA FINANCIAL GROUP, et al., Defendants.
WILLIAM D. QUARLES, Jr., District Judge.
Fidelity & Guaranty Life Insurance Co. ("Fidelity") sued United Advisory Group, Inc. d/b/a Qintera Financial Group ("Qintera"), Joseph Roosevans, and James Stoddard, (collectively, the "defendants") for breach of contract, unjust enrichment, and fraud. ECF No. 63. Pending is Qintera's motion for leave to file a counterclaim with its answer to Fidelity's first amended complaint. ECF No. 78. No hearing is necessary. Local Rule 105.6 (D. Md. 2014). For the following reasons, Qintera's motion will be granted in part and denied in part.
This case arises from an alleged contractual relationship between Fidelity and the defendants, under which Qintera was authorized to sell Fidelity's insurance products. See ECF Nos. 63 ¶ 1, 63-4 at 2, 63-7 at 10. On or about June 21 and 22, 2012, Fidelity representatives met with Stoddard and Roosevans,  "part of the group from Defendant Qintera, " in Baltimore, Maryland, to negotiate the terms of a development loan agreement (the "Loan"). ECF No. 63 ¶¶ 16, 21. During these negotiations, at which Stoddard and Roosevans allegedly "represent[ed] themselves as well as Defendant Qintera, " Stoddard and Roosevans "prepared and presented" to Fidelity a "Business Plan Executive Summary' and an Implementation Plan' for Defendant Qintera." Id. ¶¶ 24, 29. The Executive Summary stated that Qintera would leverage its affiliation with Financial Resources of America, Inc. ("FRA") so that it would not "start from scratch" in selling Fidelity's products. See id. ¶ 30 (internal quotation marks omitted). The Executive Summary also stated that FRA would fund $250, 000 of Qintera's start-up expenses. Id. ¶ 45.
The Executive Summary described Stoddard's qualifications as President of Qintera, and the Implementation Plan assigned "numerous tasks" for Stoddard to complete for Qintera. Id. ¶¶ 40-41. Stoddard's participation in Qintera was a "critical factor" in Fidelity's decision to enter the Loan agreement. Id. ¶ 44.
The Loan was "made" as of August 1, 2012. ECF No. 63-2 at 2. Under the agreement, Fidelity agreed to lend Qintera $500, 000, and the defendants, "jointly and severally, " agreed to repay that amount with interest on or before the "maturity date." ECF Nos. 63 ¶ 2, 63-2 at 2. Paragraph 1(a) of the Loan Agreement defined "Maturity Date" as "12/31/2014, or such earlier date as the Note may become due by acceleration or demand." ECF No. 63-2 at 2.
Also on August 1, 2012, Stoddard signed a producer/agency form (the "Producer Form") for Qintera, which acknowledged that he had "received, read and agree[d] to be bound by the terms of [Fidelity's] Producer Agency/Agreement." ECF Nos. 63 ¶¶ 17-18, 63-6 at 2. By its terms, the producer/agency agreement (the "Producer Agreement") was "made and entered into" in the State of Maryland, and was to be governed by Maryland law. ECF No. 63-4 at 8.
On August 23, 2012, Fidelity wired $500, 000 to Qintera's account at Midland State Bank in Effingham, Illinois. ECF No. 48-1 ¶ 3. On October 9, 2012, Qintera fired Stoddard because of poor performance, "took steps to remove him as a corporate officer, " and asked Mr. Harry Stout, one of Qintera's directors, to replace him. ECF No. 78 ¶ 21. Stoddard contacted John Phelps, Fidelity Senior Vice President, to inform him of Stoddard's termination. Id. ¶ 22; see also ECF No. 83-1 at 1. According to Qintera, Fidelity did not want Stout - a former Fidelity CEO - involved, and used Stoddard's departure to "pull the plug on the venture..., and indeed do everything possible to ensure Qintera couldn't succeed." ECF No. 78 ¶¶ 23, 24.
Between October 11 and December 14, 2012, Qintera made "certain interest payments" on the loan. Id. ¶ 4. However, "[t]he entire principal balance remains outstanding." Id.
On October 24, 2012, Fidelity terminated its relationship with Qintera by letter and demanded payment of the loan. ECF Nos. 63 ¶¶ 7, 27, 63-3 at 2, 78 ¶ 25.
On or around October 30, 2012, Fidelity ended its producer agreement with Qintera and its agents. ECF Nos. 63-5 at 2; 78 ¶ 26. Qintera alleges that Fidelity "coerc[ed] its partners in Qintera to pull the plug on negotiations and putative contracts with third parties." ECF No. 78 ¶ 27. Fidelity also ended its "producer agreement with all other business entities associated with Qintera, ending [Qintera's] extremely lucrative and decades-long relationship with Financial Resources Planning, Inc. ("FRP")." Id. ¶ 28.
On January 3, 2013, Qintera sued Fidelity in Illinois state court for fraudulent inducement. ECF Nos. 83 at 5; 83-2.
On January 4, 2013, Fidelity filed suit in this Court on the basis of diversity jurisdiction. Count One alleged breach of contract against the defendants; Count Two alleged breach of contract against Stoddard and Roosevans individually. See ECF No. 1 at 6-7. Count Two alleged that Stoddard and Roosevans entered into the Loan agreement with "fraudulent intent" by materially misrepresenting Qintera's financial status, as well as their intentions "with respect to the use of the loan proceeds." Id. ¶¶ 35-36. Fidelity alleged entitlement to pierce the corporate veil and obtain relief from Stoddard and Roosevans because of their fraud and role as Qintera's "alter egos." Id. ¶ 40. Count Three alleged unjust enrichment against the defendants. Id. at 9. The amended complaint adds Count Four against FRA, alleging that Fidelity "is entitled to collect the debt owed by Defendant Qintera from Defendant FRA as its alter ego, " because "Qintera had no mind of its own." See ECF No. 63 ¶¶ 75, 79.
On January 25, 2013, following a hearing, the Court denied Fidelity's request to preliminary enjoin the defendants from proceeding against it in litigation in Illinois. ECF Nos. 16, 17. On January 29, 2013, Fidelity removed the action to the United States District Court for the Southern District of Illinois. ECF No. 83 at 5 n. 25. On March 14, 2013, Qintera voluntarily dismissed the suit. Id.
On January 29, 2014, the Court granted in part, and denied in part, Fidelity's motion to amend the complaint, and denied as moot Roosevan's motion to dismiss for failure to state a claim. ECF No. 62.
On March 30, 2014, Qintera moved for leave to file a counterclaim with its answer to the amended complaint. ECF No. 78. Count One of Qintera's proposed counterclaim alleges breach of contract; Count Two alleges breach of the implied covenant of good faith and fair dealing; and Count Three alleges tortious interference with contract and prospective advantage. Id. at 13-17. On May 1, 2014, Fidelity opposed the motion. ECF No. 83. On May 16, 2014, Qintera replied. ECF No. 84.
Qintera seeks leave to file its counterclaim under Federal Rule of Civil Procedure 13(a)(2)(A), or, alternatively, under Rule 15(a)(2). ECF No. 78 at 1 & n.2. Fidelity contends that Qintera's motion should be denied under both rules. ECF No. 83 at 1.
A. Rule 13(a)(2)(A)
1. Legal Standard
As a general rule,
[a] pleading must state as a counterclaim any claim that - at the time of its service - the pleader has against an opposing party if the claim (A) arises out of the transaction or occurrence that is the subject matter of the opposing party's claim; and (B) does not require adding another party over whom the court cannot acquire jurisdiction.
Fed. R. Civ. P. 13(a)(1)(A)-(B). However, "[t]he pleader need not state the claim if... when the action was commenced, the claim was the subject of another pending action." Fed.R.Civ.P. 13(a) (2) (A).
2. Qintera's Motion
Qintera contends that Rule 13(a)(2)(A) applies because "when the instant matter was commenced, a separate matter encompassing claims built on the same or substantially similar nucleus of facts" was pending in Illinois state court. ECF No. 78 at 1 n. 2. Fidelity contends that Rule 13(a)(2)(A) did not excuse Qintera from filing its counterclaim with its original answer because the claims asserted in the Illinois suit differ from the claims asserted in the counterclaim. ECF No. 83 at 15.
Fidelity is correct. Rule 13(a)(2)(A) excuses Qintera from stating an otherwise compulsory counterclaim under Rule 13(a)(1) when that claim is the subject of a pending action. See Innovative Therapies, Inc. v. Meents, No. CIV.A. DKC 12-3309, 2013 WL 2919983, at *5 n.4 (D. Md. June 12, 2013) (counterclaim within Rule 13(a)(2)(A) exception when "substantively identical" claims asserted in a derivative state action). However, Qintera's Illinois suit alleged fraudulent inducement, which is substantively different from breach of contract, breach of implied covenant of good faith and fair dealing, and tortious interference - its alleged counterclaims. ECF Nos. 78 at 13-15; 83-2. Accordingly, Qintera's counterclaim in this suit is not permitted under Rule 13(a)(2)(A).
B. Rule 15(a)(2)
1. Legal Standard
When Rule 13(a)(2)(A) is unavailaing, whether to grant leave to amend a pleading to add an omitted counterclaim is governed by Rule 15. See Newport News Holdings Corp. v. Virtual City Vision, Inc., 650 F.3d 423, 439 (4th Cir. 2011). Federal Rule of Civil Procedure 15(a)(2) instructs that leave to amend should be freely given when justice requires. Leave should be denied only when amendment would unduly prejudice the opposing party, amount to futility, or reward the movant's bad faith. Steinburg v. Chesterfield Cnty. Planning Comm'n, 527 F.3d 377, 390 (4th Cir. 2008); Equal Rights Ctr. v. Niles Bolton Associates, 602 F.3d 597, 603 (4th Cir. 2010).
2. Qintera's Motion
Fidelity asserts that Qintera's counterclaim is prejudicial, futile, and in bad faith. ECF No. 83 at 6.
Qintera contends that its counterclaim is not prejudicial because the "litigation is still in its relatively early stages, " and discovery has not commenced. ECF Nos. 78 at 4; 84 at 2. Fidelity contends that Qintera's counterclaim is dilatory, and prejudicial, because Qintera asserts claims "resulting from termination of business relationships with all other business entities associated with Qintera, '" and Fidelity's motion to amend its complaint to add another defendant was denied. ECF No. 83 at 8.
In determining whether an amendment is prejudicial, the Court generally considers its nature and timing. Laber v. Harvey, 438 F.3d 404, 427 (4th Cir. 2006). For example, an amendment is often prejudicial if it "raises a new legal theory that would require the gathering and analysis of facts not already considered by the opposing party, [and] is offered shortly before or during trial." Johnson v. Orowheat Foods, 785 F.2d 503, 510 (4th Cir. 1986). However, amendments that "merely add an additional theory of recovery to the facts already pled and [are] offered before any discovery has occurred" are not prejudicial. Laber, 438 F.3d at 427. Similarly, when "defendant was from the outset made fully aware of the events giving rise to the action, " no prejudice can occur from the amendment. Davis v. Piper Aircraft Corp., 615 F.2d 606, 613 (4th Cir. 1980).
Here, Qintera's counterclaim asserts theories of recovery that arise out of the same contractual relationship at issue in Fidelity's complaint. Further, under the modified scheduling order, discovery disclosures need not commence until after the Court resolves the instant motion; final discovery is not due until 61 days after the Court enters its order. Cf. Mayfield 674 F.3d at 379 (denying leave to amend when significant discovery had been conducted). ECF No. 91. The trial date has not been set; thus, Qintera's counterclaim was not brought "shortly before or during trial." See Johnson, 785 F.2d at 510. Accordingly, there is no prejudice for which leave to amend should be denied. See Sherwin-Williams Co. v. Coach Works Auto Collision Repair Ctr., Inc., No. WMN-07-CV-2918, 2010 WL 889543, at *2 (D. Md. Mar. 4, 2010).
Qintera asserts that its counterclaim is not futile because "all three claims are sufficiently pled, factually supported, and [not] clearly insufficient or frivolous." ECF No. 84 at 7. Fidelity asserts that all three claims are futile. ECF No. 83 at 9-15. An amendment is futile if it would not withstand a motion to dismiss. See Perkins v. United States, 55 F.3d 910, 917 (4th Cir. 1995). However, "conjecture about the merits of the litigation" should not be entertained in a motion for leave to amend unless "a proposed amendment may clearly be seen to be futile, " Davis, 615 F.2d at 613, such as when "the proposed amended complaint fails to state a claim, " Katyle v. Penn Nat'l Gaming Inc., 637 F.3d 462, 471 (4th Cir. 2011).
a. Breach of Contract
To survive a motion to dismiss, "a [claim] for breach of contract must allege facts showing a contractual obligation owed by the defendant to the plaintiff and a breach of that obligation." See Swedish Civil Aviation Admin. v. Project Mgmt. Enter., Inc., 190 F.Supp.2d 785, 791 (D. Md. 2002) ( citing Cont'l Masonry Co., Inc. v. Verdel Constr. Co., Inc., 279 Md. 476, 480 (Md.1977)).
Here, Qintera alleges that the terms of the Loan gave Qintera "at least until December 31, 2014 to meet or exceed... projected production levels." ECF No. 78 ¶ 33. Further, the Loan permitted Fidelity to invoke the acceleration clause, and demand full repayment, under three instances, none of which was present. Id. ¶ 34. By "accelerating the maturity date of the loan and demanding immediate payment" absent those instances, Qintera alleges that Fidelity breached the Loan. Id. ¶ 35. Fidelity argues that - under paragraph 1(a) of the Loan - it "had the absolute right" to demand repayment. ECF No. 83 at 9. Paragraph 1(a) provides that the "Maturity Date is 12/31/2014, or such earlier date as the Note may become due by acceleration or demand." ECF No. 63-2 at 2.
Maryland applies "the law of the objective interpretation of contracts" to determine whether a contract is ambiguous. Calomiris v. Woods, 727 A.2d 358, 363 (Md. 1999). "Under the objective view, a written contract is ambiguous if, when read by a reasonably prudent person, it is susceptible of more than one meaning." Id.
Here, the Loan is ambiguous. Paragraphs 1(e) and (f) provide Fidelity the "automatic right to accelerate or demand full payment of the [L]oan" if certain conditions are met. ECF No. 63-2 at 3. If Fidelity had the right to demand full payment at any time under paragraph 1(a), paragraphs 1(e) and (f) would be superfluous. Under "basic principles of contract interpretation, " contract terms should "be construed so that none are rendered superfluous." Holland v. Psychological Assessment Res., Inc., 482 F.Supp.2d 667, 676 (D. Md. 2007) ( citing State Highway Admin. v. David A. Bramble, Inc., 717 A.2d 943, 948 (Md. 1998). Although it is not clear, that the Loan "may become due by acceleration or demand" under paragraph 1(a) appears to be restricted by the conditions enumerated in subsequent paragraphs; however, that restriction is not explicit. Accordingly, Qintera's counterclaim for breach of contract would survive a motion to dismiss; thus, it is not futile.
b. Breach of Covenant of Good Faith and Fair Dealing
Fidelity contends that Maryland law does not support an independent claim for breach of the implied covenant of good faith and fair dealing. ECF No. 83 at 10. Qintera argues that "causes of action based upon breaches of implied covenants are routinely allowed where they stem from and are linked to allegations of specific contractual breaches." ECF No. 84 at 10. Qintera cites RRC Ne., LLC v. BAA Maryland, Inc., 994 A.2d 430, 450 (Md. 2010), as supporting the proposition that "implied covenants... remained an enforceable aspect of Maryland law, and could be [pled] in conjunction with claims for breach of contract." Id. at 84 n. 30. However, the plaintiff in RRC Ne. alleged implied breach of contract in the same count alleging breach of an express contract. See RRC Ne., 994 A.2d at 444 ("Count I, entitled Breach of Contract and Implied Breach of Contract, '... alleges the following:... Defendant BAA has an express obligation under Article 12.17 of the 2005 sublease agreement as well as an implied covenant of good faith and fair dealing under the sublease agreement and temporary sublease...."). RRC Ne. thus comports with Maryland law, wherein the implied duty of good faith is part of a breach of contract claim rather than a separate claim. See Mt. Vernon Props., LLC v. Branch Banking & Trust Co., 170 Md.App. 457, 472 (Md. Ct. Spec. App. 2006). Accordingly, Qintera's claim for breach of implied covenant of good faith and fair dealing is futile, and Fidelity's motion will be granted on that claim.
c. Tortious Interference
In Maryland, a plaintiff claiming tortious interference with prospective advantage must allege facts showing that the defendant committed "(1) intentional and wilful acts; (2) calculated to cause damage to the plaintiffs in their lawful business; (3) done with the unlawful purpose to cause such damage and loss, without right or justifiable cause on the part of the defendants (which constitutes malice); and (4) actual damage and loss resulting." Bagwell v. Peninsula Reg'l Med. Ctr., 665 A.2d 297, 313-14 (Md. Ct. Spec. App. 1995) ( quoting Alexander & Alexander, Inc. v. B. Dixon Evander & Assocs., Inc., 650 A.2d 260 (Md. 1994)). For a plaintiff to recover, "the defendant's conduct must be independently wrongful or unlawful, quite apart from its effect on the plaintiff's business relationships." Lyon v. Campbell, 707 A.2d 850, 860 (Md. Ct. Spec. App. 1998) (internal quotation marks and citation omitted).
Fidelity contends that Phelps's statements were not malicious or wrongful because Fidelity had the right to terminate the Producer Agreement on 30 days' notice. ECF No. 83 at 3-4, 14-15. Conduct considered wrongful includes "violence or intimidation, defamation, injurious falsehood or other fraud, violation of the criminal law, and the institution or threat of groundless civil suits or criminal prosecutions in bad faith." PPM Am., Inc. v. Marriott Corp., 853 F.Supp. 860, 880 (D. Md. 1994) (quoting K & K Mgmt., Inc. v. Lee, 557 A.2d 965 (Md. 1989)). Plaintiffs generally "must plead these egregious acts because [a] broader right to interfere with economic relations exists where no contract or a contract terminable at will is involved.'" Ultrasound Imaging Corp. v. Am. Soc'y of Breast Surgeons, 358 F.Supp.2d 475, 481 (D. Md. 2005) ( quoting Macklin, 639 A.2d at 117). However, wrongful conduct may be "quite subtle." Macklin, 639 A.2d at 119.
Here, Qintera has alleged facts showing that Phelps's conduct was wrongful. Phelps instructed Roosevans to end negotiations with HH because of Phelps's "personal animus" toward Stout, and because he had decided to end Qintera's Producer Agreement. ECF No. 78 ¶¶ 53-54. Although "conduct is not improper or wrongful if he or she had the right to" do it, Macklin, 639 A.2d at 119, Phelps told Roosevans to cancel negotiations with HH, and advised him that Fidelity would not agree to the deal, about two weeks before Fidelity demanded repayment, and about three weeks before it terminated Qintera's Producer Agreement. ECF No. 78 ¶¶ 25, 26, 53. Although the evidence may ultimately show that Phelps had the right - on October 10, 2012 - to instruct Roosevans to cease negotiations, at this stage, Qintera has plausibly alleged wrongful conduct
Qintera has sufficiently alleged malice. Phelps intended to interfere with the potential contract with HH with the "broader goal of ensuring Qintera's demise." Id. ¶ 56. Accordingly, Qintera's tortious interference claim would survive a motion to dismiss; thus, it is not futile.
iii. Bad Faith
Fidelity contends that Qintera's counterclaim motion is in bad faith because Qintera "waited over a year to assert a counterclaim, " which asserted facts known to Qintera before this suit commenced. ECF No. 84 at 8. Fidelity further contends that Qintera - after "passionately argu[ing]" that FRA should not be joined as a defendant - now asserts losses suffered by entities such as FRA. Id. at 9. Qintera contends that Fidelity's assertions of bad faith are unsupported. ECF No. 84 at 6.
Here, as discussed above,  Qintera is not asserting claims for losses to other entities. It alleges that Fidelity breached the contract, and the covenant of good faith and fair dealing, between Qintera and Fidelity. ECF No. 78, Counts One and Two. It further alleges that Fidelity tortiously interfered with a prospective contract between Qintera and HH; as a result, Qintera suffered damages. Id., Count Three. Because "[d]elay alone, without prejudice, does not support the denial of a motion for leave to amend, " Fidelity has not shown that Qintera's counterclaim was filed in bad faith.
Accordingly, Qintera's motion for leave to file a counterclaim with its answer will be granted on Counts One (Breach of Contract), and Three (Tortious Interference).
For the reasons stated above, Qintera's motion for leave to file a counterclaim with its answer to Fidelity's first amended complaint will be granted in part and denied in part.