A federal judge from the Northern District of Ohio has granted a defendant’s motion for leave to amend a counterclaim in a breach of contract suit involving a golf course management company and a golf course.
Specifically, the court found that the defendant alleged sufficient facts to state a viable claim.
This case arises from a golf course management agreement entered into on December 22, 2009, between Billy Casper Golf, LLC (BCG) and Kennsington Golf Club, LLC (KGC). KGC hired BCG to manage their facility for a three-year term, commencing on January 1, 2010. BCG claimed that it provided all the services required under the agreement, and alleged that KCG:
• failed to provide appropriate working capital for the facility;
• failed to maintain the required minimum funds balance in the operating account; and
• failed to reimburse BCG or pay the expenses associated with BCG’s procurement of inventories, equipment and services necessary for the operation of the facility.
“As a result of these alleged breaches, BCG terminated the agreement and initiated this action under federal diversity jurisdiction, claiming breach of contract and unjust enrichment,” wrote the court.
KGC answered and countersued. More recently, it sought leave to amend its counterclaim with breach of contract, breach of fiduciary duty, and fraudulent inducement claims.
BCG moved to deny an amendment to the counterclaim, claiming that “as a general rule, no fiduciary relationship exists between parties negotiating an arms-length commercial transaction,” wrote the court. “BCG argued that KGC’s proposed counterclaim failed to state fraud and breach of fiduciary duty claims, upon which relief can be granted.”
Examining the breach of fiduciary duty claim first, the court cited the following requirements to state such a claim:
“(1) the existence of a duty arising from a fiduciary relationship, (2) a failure to observe the duty, and (3) an injury resulting proximately therefrom.” Infocision Management Corp. v. Foundation for Moral Law, Inc., Nos. 5:08CV1342 & 5:08CV1412, 2009 U.S. Dist. LEXIS 23640, 2009 WL 650282, *6 (N.D.Ohio Jan. 14, 2009) (citing Strock v. Pressnell, 38 Ohio St.3d 207, 216, 527 N.E.2d 1235 (1988)).
KGC claimed that it “entrusted BCG with the care, maintenance, operation, business goodwill and financial future of the Facility, a multi-million dollar investment.
“ … such that KGC placed special confidence and trust in the integrity and fidelity [of] BCG, through which BCG gained a resulting position of superiority or influence over both the Facility and KGC.
“BCG breached its fiduciary duties to KGC by failing to disclose its inability to provide timely agronomy services to KGC; by failing to disclose that it did not have proprietary marketing software; by overstating KGC’s relationship with national suppliers to achieve cost advantages; by self-dealing through its so-called ‘Centralized Services’; by failing to disclose that it was passing along various fees and membership dues for BCG’s sole benefit that did not directly benefit KGC; that it willfully breached its duty of loyalty by hiring personnel KGC previously discharged for cause after KGC expressly requested BCG refrain from so doing; by charging KGC for the cost of bringing in additional personnel to work through the mistakes and errors BCG was solely responsible for; and by failing to protect and defend the reputation of KGC and the Facility within the community.”
These allegations led to damages, namely “the time and expense incurred from the payment of bogus bills, fees and/or dues; over inflated personnel salaries, benefits and travel expenses; over payment(s) for goods purchased, the expense of dues and fees not for the benefit of KGC, the time of KGC personnel to address and seek a remedy for the aforementioned breaches, professional fees associated with BCG’s breaches and the cost of re-assuming control over the facility upon BCG’s termination of the agreement.
“Upon review of these allegations, the Court is convinced that the breach of fiduciary duty count of KGC’s proposed Amended Counterclaim sufficiently alleges the required elements of the cause of action, and pleads enough facts to state a claim for relief that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007).”
Turning to the fraudulent inducement claim, the court noted the following requisite elements: “(a) a representation or, where there is a duty to disclose, concealment of a fact, (b) which is material to the transaction at hand, (c) made falsely, with knowledge of its falsity, or with such utter disregard and recklessness as to whether it is true or false that knowledge may be inferred, (d) with the intent of misleading another into relying on it, (e) justifiable reliance upon the representation or concealment, and (f) a resulting injury proximately caused by the reliance.” Groob v. KeyBank, 108 Ohio St.3d 348, 357, 2006 Ohio 1189, 843 N.E.2d 1170 (2006) (citing Gaines v. Preterm-Cleveland, Inc., 33 Ohio St.3d 54, 55, 514 N.E.2d 709 (1987)).
KGC alleged that BCG made materially false representations to KGC, prior to entry into the agreement, that BCG could provide immediate agronomy services at the level KGC both requested and needed, prior to the start of the 2010 golf season, as well as have all necessary golfer tracking/marketing software installed and operational for the 2010 golf season.
Because of these and other actions, KGC suffered the following damages: “inflated management fees over and above the value of any such service provided; the difference in value between the goods BCG promised to provide at reduced cost and the actual cost of procuring such goods; the professional fees associated with unwinding the agreement; the costs of re-assuming management of the facility, as well as the costs associated with the restoration of KGC’s good will and reputation which were damaged as a result of BCG’s false representations.
“The Court finds these allegations of fraud in the inducement are sufficient to survive a Fed.R.Civ.P. 12(b)(6) challenge, and satisfy the required elements for the cause of action.”
Billy Casper Golf, LLC v. Kennsington Golf Club, LLC; N.D. Ohio; CASE NO. 4:11CV527, 2012 U.S. Dist. LEXIS 26644; 2/29/12
Attorneys of Record: (for plaintiff, counter-defendant) Robert M. Anspach, LEAD ATTORNEY, Cory D. Catignani, Anspach Meeks Ellenberger – Toledo, Toledo, OH; Kristen A. Bennett, Moore & Lee, McLean, VA. ( for defendant, counter-claimant): Christopher J. Gagin, Youngstown, OH.
