Opinion
Civil File No. 02-2930 ADM/AJB.
April 3, 2003
REPORT AND RECOMMENDATION ON MOTION TO DISMISS
This matter is before the Court, United States Magistrate Judge Arthur J. Boylan, on the motion of defendant AW Restaurants, Inc., et al., for dismissal pursuant to Fed.R.Civ.P. 12(b)(6). Hearing on the motion was held on December 12, 2002, at the U.S. Courthouse, 316 No. Robert St., St. Paul MN 55101. Timothy D. Kelly, Esq., appeared on behalf of the plaintiff, Stephan E. Lieberman. Phillip S. Reed, Esq., and Todd A. Wind, Esq., appeared on behalf of defendants, AW Restaurants, Inc., et al. The matter has been referred to the magistrate judge for report and recommendation under 28 U.S.C. § 636(b)(1). Defendants in this motion seek dismissal of all five counts as submitted in plaintiff s complaint.
BACKGROUND
Carousel Snack Bars was a Minnesota Corporation that owned and operated approximately 180 fast food restaurants affiliated with the "AW" brand name. In July 1996, plaintiff Stephan E. Lieberman, along with the twelve other shareholders of Carousel, entered into negotiations with what was then AW Restaurants, Inc. a Michigan Corporation ("AW"). At that time, AW was a wholly-owned subsidiary of Sagittarius Acquisitions, Inc. (the "Company"). In May 1997, the parties reached an agreement whereby the owners of Carousel (the "Warrant Holders") collectively received $11 million in cash and a $3.45 million stock warrant. According to the Common Stock Purchase Warrant, the Warrant Holders have the right to purchase AW stock when AW undergoes an initial public offering of its stock (IPO). In addition, the Warrant Agreement provides that these rights will continue in full force after any reorganization, consolidation or merger of AW or its successors in interest. Also, the Warrant Agreement contains protections against dilution or impairment of the rights of the Warrant Holders.
The Company has under gone two name changes since then and is now know as Yorkshire Holdings, Inc.
A few months after the sale of Carousel's assets to AW, it was decided that instead of AW undergoing an IPO, AW's parent company, which was at that time was named Sagittarius, would undergo an IPO. The Warrant Holders were then issued warrants in Sagittarius. This is the Warrant Agreement that the plaintiff now holds.
In September 1999, the Company participated in a transaction that placed ownership of the Company's stock in the hands of a newly-created parent corporation, Yorkshire Global Restaurants, Inc. ("Yorkshire Global"). In April 2002, all of Yorkshire Global's shares were acquired by TRICON Global Restaurants, Inc. ("TRICON"). TRICON is a publically traded entity. The plaintiff contends that the merger of Yorkshire Global and TRICON has impaired the rights of the Warrant Holders by making it less likely that the Company will go public. Plaintiff alleges that such impairment constitutes a breach of contract. In addition, Mr. Lieberman claims that the merger of Yorkshire Global and TRICON creates a de facto IPO that triggers the rights of the Warrant Holders. Mr. Lieberman further alleges that he is entitled to relief based upon equitable principles of promissory estoppel and unjust enrichment. Finally, plaintiff alleges that defendant Feltenstein is liable for fraud committed during the original negotiations in the sale of Carousel.
DISCUSSION
Standard of Review Motion to dismiss. Defendants move to dismiss all five counts of plaintiff's complaint for a failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6). In determining whether to grant or deny a motion to dismiss, the court must accept as true all factual allegations made by the complainant and make all reasonable inferences in favor of the complainant. Midwestern Mach., Inc. v. Northwest Airlines, Inc., 167 F.3d 439, 441 (8th Cir. 1999); Dennehy v. Cousins Subs System, Inc., No. Civ. 02-1772 RHK-AJB, 2002 WL 31571149 at *2 (Minn. Nov. 18, 2002). "A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can not prove any set of facts in support of his claim that would entitle him to relief."Schaller Tel. Co. v. Golden Sky Sys., Inc., 298 F.3d 736, 740 (8th Cir. 2002); Cole Sales Solutions. Inc. v. Eddie Bauer Inc., No. Civ. 02-661 RKH/AJB, 2002 WL 31505626 at *4 (Minn. Nov. 8, 2002). Merely stating legal conclusions, however, is insufficient. Young v. City of St. Charles, 244 F.3d 623, 627 (8th Cir. 2001). The purpose of Rule 12(b)(6) is to "eliminate actions which are fatally flawed in their legal premises and deigned to fail, thereby sparing litigants the burden of unnecessary pretrial and trial activity." Id.
Under the authority of Fed.R.Civ.P. 12(b), a motion for judgment on the pleadings shall be treated as a motion for summary judgment if matters outside the pleadings are presented to and not excluded by the court. A court may, however, consider extraneous material presented to the court outside of the complaint if such materials are "necessarily embraced" by the pleadings. Piper Jaffray Co., Inc. v. National Union Fire Insur. Co., 967 F. Supp. 1148, 1152 (Minn. 1997) (examining a copy of the contract in question is not looking at material beyond the pleadings since the contract is necessarily embraced by the pleadings). If the court does not rely on materials that are outside of the pleadings, then the motion may be treated solely as a motion to dismiss. Casazza v. Kiser, 313 F.3d 414, 418 (8th Cir. 2002).
Plaintiff has submitted a copy of the stock warrant agreement between the Warrant Holders and AW (the "Warrant Agreement"). Since the language of the Warrant Agreement is referenced in the complaint and is important in determining the scope of the claim, this document is necessarily embraced by the complaint. The plaintiff has also submitted two additional documents, i.e. (1) a copy of the Plan and Agreement of Stock Exchange by and among AW Restaurants Holdings, Inc. and Yorkshire Global Restaurants, Inc. and (2) a letter referenced within the complaint. This court has excluded those materials from consideration in this motion. For these reasons, this matter will be treated as a motion to dismiss under Fed.R.Civ.P. 12(b)(6) and not as a motion for summary judgment under Fed.R.Civ.P. 56, despite the submission of materials outside the pleadings.
Choice of Law
The federal court's jurisdiction in this matter is based upon diversity. In a diversity action, the federal court must determine which state's laws should be followed by applying the choice of law rules of the forum state. Northwest Airlines. Inc. v. Astraea Aviation Services, Inc., 111 F.3d 1386, 1393 (8th Cir. 1997). The Warrant Agreement includes a choice of law provision providing that the warrant "shall be construed and enforced in accordance with and governed by the laws of the State of Michigan." Minnesota generally honors the choice of law agreed upon by the parties in the agreement. U.S. Bank Nat'l Assoc'n v. Angeion Corp., 615 N.W.2d 425, 429 (Minn.Ct.App. 2000) (applying New York law to breach of contract claim) (citing Milliken Co. v. Eagle Packaging Co., 295 N.W.2d 377, 380 n. 1 (Minn. 1980)). Since the parties initially agreed to be bound by Michigan law this court will honor the choice of law provision and apply Michigan law to the claim of breach of contract. In addition, Michigan law applies to claims that stem from the alleged breach of contract. Northwest Airlines. Inc., 111 F.3d at 1393 (concluding that even tort-like claims that are closely related to the interpretation of the contract will be governed by the express choice of law provision). Therefore, the court has applied Michigan law to the claims of promissory estoppel, unjust enrichment and de facto IPO. The fraud claim, which lies outside of the contract, is decided under Minnesota law.
Review of pertinent Minnesota law indicates that the outcome in this motion would be the same if Minnesota law were applied. See Norwest Bank Minnesota. N.A. v. Ode, 615 N.W.2d 91, 96 (Minn.Ct.App. 2000) (noting that unjust enrichment cannot be found where an express contract exists covering the same subject matter) and Ruud v. Great Plains Supply. Inc., 526 N.W.2d 369, 372 (Minn. 1995) (finding no promissory estoppel when no clear and definite promise has been made).
Count I — Breach of Contract
Mr. Lieberman alleges that the defendants have breached the Warrant Agreement in two ways. Plaintiff first alleges that the merger between TRICON and Yorkshire Global impaired the performance of the Stock Warrant by making it less likely that the Sagittarius would go public. According to the plaintiff, this impairment was prohibited by the anti-dilution and impairment clause of the Warrant Agreement. In addition, plaintiff alleges that the corporate stock exchange that occurred between the Company and a newly formed company, Yorkshire Global Restaurants, Inc. ("Yorkshire Global"), should have triggered an issuance of substitute warrants for the Warrant Holders and failure to do so was a breach of contract.
Subsequent to oral arguments on this matter, the plaintiff has submitted an amended complaint adding the remaining Warrant Holders as named plaintiffs and also adding some factual detail obtained in discovery. The plaintiff notes in correspondence accompanying the amended complaint that no new legal claims are added. Since no new legal claims are presented by the amended complaint, and the court finds that the additional factual detail does not materially alter the analysis in this report, the court concludes that additional argument is not required.
"The primary goal in the construction or interpretation of any contract is to honor the intent of the parties." UAW-GM Human Resource Center v. KSL Corporation, 579 N.W.2d 411, 414 (Mich.Ct.App. 1998) (quotingRasheed v. Chrysler Corp., 517 N.W.2d 19, 29 n. 28 (Mich. 1994)). The interpretation of contract language is a matter of law. Id. The court must look to the contract language to determine the intent of the parties. Id. Only when the language is ambiguous may a court turn to material outside of the contract. Id. A contract is ambiguous if its words may reasonably be understood in different ways. Rasheed, 517 N.W.2d at 29 n. 27.
A. Impairment
At issue in the breach of contract claim is the interpretation of the word "impairment." Plaintiff alleges that the word should be broadly defined to include any action by the Company that might hinder the ability of the Warrant Holder to exercise his rights. Mr. Lieberman argues that this would include action by the Company that would make it less likely to go public. The defendant argues that this interpretation is too broad. The defendant insists that the term should be more narrowly defined to include only legal impairments that would impair the monetary value of the warrant, such as a devaluation of the company assets.
Stock purchase warrants are option contracts that entitle the "holder to purchase specified number of shares of stock for a specific price during a designated time period." Reiss v. Financial Performance Corp., 764 N.E.2d 958, 960 (N.Y. 2001) (Reiss II). See also Fletcher Cyclopedia of Corporations § 1370 (defining stock warrants). Plaintiff cites to the lower court's ruling in Reiss v. Financial Performance Corp., 279 A.D.2d 13, 23 (N.Y.App.Div. 2000) (Reiss I) to argue that courts may imply terms to the warrant when the outcome, without the modified terms, would be contrary to what the parties could have ever intended. In Reiss I, the appellate division modified the contract to provide for an adjustment of the number of shares allowed by the stock warrant when the stock warrant value was dramatically altered by a stock reversal. Reiss I, 279 A.D.2d at 22-23. On appeal, however, the court of appeals determined that the lower court had been incorrect to imply terms of the contract. Reiss II, 764 N.E.2d at 960. The court of appeals stated that "this Court will not imply a term where the circumstances surrounding the formation of the contract indicate that the parties, when the contract was made, must have foreseen the contingency at issue and the agreement can be enforced according to its terms." Id. at 961. Thus, plaintiff incorrectly relies on Reiss I. According to Reiss II, warrants must be interpreted by their express terms, even if results occur that were unintended by the parties, as long as the results could have been foreseeable by the parties. Id.
Looking to the express language of the contract, this court must determine whether or not the dilution and impairment clause of the contract protects the Warrant Holders from actions by the Company that would inhibit their ability to act on the warrant. Under the Warrant Agreement, the Company agrees to "in good faith assist in the carrying out all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Warrants against dilution or other impairment."
Plaintiff cites several cases to define the dilution and impairment of stocks and stock warrants. Plaintiff contends that these cases demonstrate that impairment may be in the form of impairing his right to redeem the warrant as opposed to the value of the warrant. These cases, however, indicate that courts find dilution and impairment of stocks and stock warrants when the monetary value of the stock or warrant has been negatively affected. See Cofman v. Acton Corp., 958 F.2d 494, 496 (1st Cir. 1992) (finding dilution when stock underwent reverse stock split which changed value of stock warrant). Plaintiff does not allege that the monetary value of the stock that would issue under the Warrant Agreement has been impaired or diluted. He alleges that the decreased likelihood of a public offering has impaired his chances of being able to redeem the option. This is not the type of impairment contemplated by the cases cited by the plaintiff.
The express language of the Warrant Agreement prohibits the Company from impairing the rights of the Warrant Holders. The right of the Warrant Holders, as indicated in the Warrant Agreement, is the ability to purchase a specified amount of Common Stock at the initial public offering price. This offer is to remain open for ten years after the effective IPO date. The right that is conferred to the Warrant Holder, therefore, is such that when an IPO occurs, the Warrant Holder may purchase stock at a specified price for a specified duration.
The express language of the Warrant Agreement does not confer on the Warrant Holder an enforceable expectation that the Company undergo an IPO or that the Company exercise good faith efforts to achieve an IPO. The Company must use good faith efforts to protect the right of the Warrant Holder to purchase the agreed upon amount of Common Stock at the agreed upon price during and for a duration of ten years when and if the company undergoes the initial IPO. Since an IPO has not occurred as of yet and the plaintiff has pled no facts to support the claim that the Warrant Holder's rights have been impaired, plaintiff cannot maintain a cause of action for breach of contract based on impairment or dilution.
B. Substitute Warrants
Plaintiff also alleges breach of contract based on the claim that the Company had an obligation to substitute warrants when Yorkshire Global, the Company's parent company, merged with TRICON. Mr. Lieberman argues that the Adjustment for Reorganization, Consolidation and Merger provision (the "Merger Provision") in the Warrant Agreement mandates that substitute warrants be issued if the company undergoes a reorganization, merger or consolidation. The Merger Provision states in part that:
In case at any time . . . the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan . . . contemplating the subsequent dissolution of the Company, then in such case this Warrant shall continue in full force and effects . . .
Under the clear meaning of the Warrant Agreement, defendants had no obligation to substitute warrants of a parent company when the Company for which the Warrants were issued has remained an intact entity. According to the facts pled, the Company has not undergone a reorganization, merger, consolidation of dissolution. The defendant's obligation to issue substitute warrants to the Warrant Holder arises only in the situation where there has been a change in the organization of the Company. There has been no reorganization, consolidation, merger or dissolution of the Company. Since the Company has no obligation to substitute new warrants for the current Warrant Agreement, plaintiff has failed to state a claim for breach of contract.
Count II — "De facto IPO"
The plaintiff has alleged a unique claim of de facto IPO. Mr. Lieberman argues that other jurisdictions have adopted the doctrines of de facto business transactions in order to protect the interests of shareholders. Plaintiff argues that this court should adopt the doctrine of de facto IPO. The plaintiff relies on Gabhart v. Gabhart, 370 N.E.2d 345 (Ind. 1977), as an example of a jurisdiction adopting a de facto dissolution. In Gabhart, the Supreme Court of Indiana held that minority stock holders could challenge a merger as a de facto dissolution. Id at 356. However, noting that the Gabhart ruling "created substantial uncertainty" about the rights of minority shareholders, the Indiana legislature expressly rejected the Gabhart ruling that allowed the minority stockholders' challenge of a de facto dissolution. See Nat. Board of Examiners for Osteopathic Physicians and Surgeons, Inc. v. American Osteopathic Assoc., 645 N.E.2d 608, 622 (Ind.Ct.App. 1994). Indiana, through state enacted law, clearly rejected equitable remedies under a de facto doctrine to protect shareholder's rights.
Michigan has not directly addressed the issue of de facto IPO with respect to shareholder rights. Turner v. Bituminous Casualty Co., Inc., 244 N.W.2d 873, 889 (Mich. 1976). The Michigan Supreme Court has applied the de facto merger doctrine to instances that involve creditor's rights. See id. In Turner, however, the dissent noted that the intention of the Michigan Law Review Commission was to reject the de facto merger doctrine with respect to shareholder rights. See id. at n. 3 (Coleman, J. dissenting).
The Minnesota Supreme Court has not directly adopted the doctrine of de facto merger. See, Cieslukowski v. Norton Motors Int'l, Inc., No. Civ. 99-1056 (JRT/FLN), 2002 WL 31045846 at *7 (Sept. 10, 2002). TheCieslukowski court determined, however, that the Minnesota Supreme Court would more than likely adopt the doctrine if faced with that issue. Id. (citing several Minnesota cases applying the de facto merger doctrine "as if it were law"). See also, T.H.S. Northstar Assoc. v. W.R. Grace Co., 840 F. Supp. 676, 678-79 (D. Minn. 1993) (observing that Minnesota's rule on successor liability "necessarily incorporates [de facto merger] for the purpose of finding successor liability"). Plaintiff argues that this doctrine is adopted by states to protect shareholders from manipulation by those in control of the business. Minnesota, however, seems to have applied the doctrine to protect corporate debtors or those involved in personal injury tort in finding successor liability, not minority shareholder rights. See, Cieslukowski (citing several cases applying de facto merger in successor liability actions).
Initial public offerings are highly regulated by corporate law statutes. In this instance, there is no claim that any stock covered by the warrant has been offered to the public. The company in question, Carousel, remains a privately owned subsidiary, whose owner happens to be a corporation with publicly traded stock. If, under the present circumstances, this court were to recognize a common law IPO, the result would be questionable. To find a IPO in this instance would signify that whenever a parent company participated in an IPO, any or all subsidiaries of that company would have effectively undergone an IPO as well. The court declines to impose such a result.
On these facts, in the review of the rulings in other jurisdictions, and in light of the fact that Michigan has declined to protect investor rights in other de facto situations, the court is not persuaded that recognition of a new cause of action based upon de facto IPO is appropriate. Since this court declines at this time to adopt the equitable doctrine of a de facto IPO plaintiff has failed to state a claim on which relief can be granted.
Count III — Unjust Enrichment
Mr. Lieberman alleges that defendants have been unjustly enriched as a result of the sale of Carousel and subsequent merger of Yorkshire and TRICON. Unjust enrichment is an equitable remedy that courts impose to ensure that "exact justice" is obtained. Kammer Asphalt Paving Co. v. .East China Twp. Schools, 504 N.W.2d 635, 640 (Mich. 1993). Under the doctrine of unjust enrichment a court "indulges in the fiction of a quasi or constructive contract, with an implied obligation to pay for benefits received." Id. Courts should approach this process with some caution. B M Die Co. v. Ford Motor Co., 421 N.W.2d 620, 623 (Mich.Ct.App. 1988). A contract, however, may not be implied where an express contract already exists. Campbell v. City of Troy, 202 N.W.2d 547, 549 (Mich.App. 1972) ("There cannot be an express and implied contract covering the same subject matter at the same time."). Unjust enrichment is not applicable when an express contract exists between the two parties. Id.
In order to show a cause for unjust enrichment, the plaintiff must establish that there was (1) receipt of a benefit by the defendant from the plaintiff and (2) an inequity resulting to the plaintiff because of the retention of the benefit by the defendant. Barber v. SMH (US), Inc., 509 N.W.2d 791, 796 (Mich.Ct.App. 1993). Plaintiff alleges that the defendants received the benefit of a discounted sale price for Carousel and then, by breaching the contract through the impairment of the Stock Warrants, benefitted again on the merger of Yorkshire and TRICON.
In the present case, a detailed express contract was negotiated between Mr. Lieberman and Mr. Feltenstein, as a representative for the Company. Mr. Lieberman and twelve other individuals received for the sale of Carousel a specified dollar amount and the right to purchase stock at the IPO rate in the event that the Company went public. All of these terms were included in a written contract. Defendants have not retained a benefit without just compensation to plaintiff. For the discounted price, plaintiff received the option to purchase stock when the Company undergoes an IPO. The fact that the Company has not yet undergone an IPO does not signify that defendants have been unjustly enriched.
In support of his unjust enrichment theory, Plaintiff argues that in certain circumstances unjust enrichment has been applied as a remedy for a breach of contract. Plaintiff cites to section 344 of the Restatement (Second) of Contracts. Section 344 applies to determining damages in the event of a breach of contract. Plaintiff additionally cites to P. C. Data Centers of PA., Inc. v. Fed. Express Corp., 113 F. Supp.2d 709 (M.D. Pa. 2000), as an example of a situation where a court has imposed unjust enrichment damages. In P.C. Data Centers, however, the court does not characterize the damages as unjust enrichment. See id. at 714-15. In fact, the court specifically notes that "[the plaintiff] is only entitled to be placed in the position it would have occupied had [the defendant] performed as contractually required, and not in any better condition."Id. at 716 (awarding damages in a breach of contract claim). Using unjust enrichment to determine damages after a breach of contract is, however, quite different than pleading a separate cause of action of unjust enrichment, as is the case here. Plaintiff cites no case law in support of his claim that unjust enrichment should be applied when an express contract exists. Recognizing unjust enrichment in the face of an express contract is, in fact, contrary to Michigan law. See Campbell v. City of Troy, 202 N.W.2d at 549.
Unjust enrichment is applied by the courts in the interest of equity to restore to the plaintiff a value of something unfairly taken. Kammer Asphalt paving Co., 504 N.W.2d at 640. When there is a contract, the remedy is damages under a breach of contract theory. Since under Michigan law, this court may not imply a contract where there exists an express contract on the same subject matter, see Campbell, 202 N.W.2d at 549, the claim of unjust enrichment fails to state a claim upon which relief can be granted.
Count IV — Promissory Estoppel
Plaintiff has alleged that the Company, through Mr. Feltenstein, represented that the plan to go public was the sole exit mechanism from the company. In other words, Mr. Lieberman claims that Mr. Feltenstein stated that the Warrant Holders would be able to recoup the difference in the discounted sale price and the price that the Warrant Holders had requested. In addition, plaintiff alleges that Mr. Feltenstein represented that the Warrant Holders would be able to exit from the company at the same time as Feltenstein and other insiders. Plaintiff has stated that he relied upon these statements in agreeing to the structure of the sale of Carousel.
Under Michigan law, the equitable remedy of promissory estoppel is allowed when "(1) there is a promise (2) that the promisor should have reasonably expected to induce action of a definite and substantial character on the part of the promisee (3) which in fact produces reliance or forbearance of that nature (4) under circumstances such that the promise must be enforced if injustice is to be avoided." Barber v. SMH (US), Inc., 509 N.W.2d 791, 797 (Mich.Ct.App. 1993). Courts are cautioned to apply the doctrine of promissory estoppel with restraint.Id. "The doctrine of estoppel should be applied only where the facts are unquestionable and the wrong to be prevented undoubted." Barber, 509 N.W.2d at 376. "Promissory estoppel may not be used to override the express agreement of the parties contained in written agreements." APJ Associates. Inc. v. North American Philips Corp., 317 F.3d 610, 617 (6th Cir. 2003).
The promise must be definite and clear; statements of opinions or mere predictions of future events are not sufficient. Charter Township of Ypsilanti v. General Motors Corp., 506 N.W.2d 556, 559 (Mich.Ct.App. 1993). Michigan courts have found that statements using puffery and hyperbole in seeking an advantage or a concession are not necessarily sufficient to create a promise. Id. For example, Michigan courts have noted that statements like "We look forward to growing together," are insufficient to create a clear and definite promise. Id. See also, Barber, 509 N.W.2d at 797 (finding that the statement that the plaintiff would be defendant's exclusive representative "as long as he was profitable and doing the job" was not a clear and definite promise).
Plaintiff has not pled any facts which demonstrate that the defendants made clear and definite promises that the company would undergo an IPO. Business plans are, by their nature, predictions of the future. The phrases of "having a plan to," "could recoup," "if [the company] met its projections it could go public," are not clear and definite promises. These statements are merely predictions of future events. In addition, the IPO was conditioned on "good performance." See Barber, 509 N.W.2d at 797 (finding no clear and definite promise when statement is conditional).
Since the remaining elements of a cause of action for promissory estoppel are predicated on the existence of a promise, which the plaintiff has failed to plead, the court declines to explore the remaining elements of promissory estoppel. Even if the plaintiff had pled a definite promise, this court would be reluctant to apply promissory estoppel since there is an express agreement between the parties. See, APJ Associates, Inc, 317 F.3d at 617. Like unjust enrichment, promissory estoppel is an equitable solution to be applied only when parties do not have a written agreement. Id. Plaintiff has failed to state a claim on which relief can be granted since plaintiff has failed to plead a clear and definite promise and a written agreement exists between the parties.
Count V — Fraud
The plaintiff has alleged fraud against defendant, Mr. Feltenstein. Fed.R.Civ.P. 9(b) requires that allegations of fraud be pled with particularity. "The plaintiff must set forth the who, what, when, where, and how: the first paragraph of any newspaper story." Parnes v. Gateway 2000. Inc., 122 F.3d 539, 549 (8th Cir. 1997); see also, Bennett v. Berg, 685 F.2d 1053, 1062 (8th Cir. 1982) (The pleadings must contain "such matters as the time, place, and contents of false representations as well as the identity of the person making the misrepresentation and what was obtained or given up thereby.").
In addition, Minnesota law "establishes a high threshold of proof for such a claim." Martens v. Minnesota Mining Mfr. Co., 616 N.W.2d 732, 747 (Minn. 2000). According to Minnesota law, the plaintiff must show that (1) there was a misrepresentation with respect to a past or present fact; (2) the fact was material and susceptible to knowledge; (3) the representer knew it was false or in the alternative, asserted it as his own knowledge without knowing whether it was true or not; (4) the representer intended to induce the claimant to act or justified the claimant acting; (5) the claimant was so induced to act or justified in acting in reliance on the representation; (6) the claimant suffered damages and (7) the representation was the proximate cause of the damages. Id. "Broken promises generally do not constitute fraud, unless the plaintiff shows affirmative evidence that the promisor had no intention to perform." Northwest Airlines. Inc. v. Astraea Aviation Services. Inc., 111 F.3d 1386, 1393 (8th Cir. 1997) (citations and internal quotations omitted). Statements that are general or indefinite are not factual statements. Martens, 616 N.W.2d at 747. If the statements refer to future events, the plaintiff must also show that at the time of the representation, the representor had no intention of performing. Id. See also, Vandeputte v. Soderholm, 2.16 N.W.2d 144, 147 (1974) ("It is a well-settled rule that a representation or expectation as to future acts is not a sufficient basis to support an action to fraud merely because the represented act or event did not take place.").
The Michigan Supreme Court has long held that "[s]tatements promissory in their character that one will do a particular thing in the future are not misrepresentations, but are contractual in their nature, and do not constitute fraud." Boston Piano Music Co. v. Pontiac Clothing Co., 165 N.W. 856, 857 (1917) (citations omitted).
The statements alleged to Mr. Feltenstein are clearly statements about future events. Phrases such as "assuming good performance," "poised to engage," "planned to take," "could go public," "could reasonably expect," "if the insiders sold," are examples of predictions of future events or conditions. These are general and indefinite statements and are not representations made on past or present facts. In addition, since Mr. Lieberman has pled representations about future events or actions, he must also allege that the defendant had no intention of performing these actions at the time the statements were made. He has failed to do this. Plaintiff has failed to plead the fraud claim with the requisite particularity provided for by Fed.R.Civ.P. 9(b). Although plaintiff has pled the who and what, he has failed to plead the when, where and how. For these reasons, plaintiff has failed to plead a cause of action for fraud.
RECOMMENDATION
IT IS HEREBY RECOMMENDED that defendant's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) be granted [Docket No. 6]. The complaint should be dismissed with respect to all five counts.
Pursuant to Local Rule 72.1(c)(2), any party may object to this Report and Recommendation by filing with the clerk of Court and by serving upon all parties written objections which specifically identify the portions of the Report to which objections are made and on the bases of each objection. This Report and Recommendation does not constitute as order or judgment from the District Court and it is therefore not directly appealable to the Circuit Court of Appeals. Written objections must be filed with the Court before April 16, 2003.
Unless the parties stipulate that the District Court is not required by 28 U.S.C. § 636 to review a transcript of a hearing in order to resolve all objections made to this Report and Recommendation, the party making the objections shall timely order and file a complete transcript of the hearing within ten days of the receipt of the Report.