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RE/MAX, LLC v. Quicken Loans Inc.

United States District Court, D. Colorado

March 20, 2018

RE/MAX, LLC, Plaintiff,
v.
QUICKEN LOANS INC., Defendant,
v.
MOTTO FRANCHISING, LLC, Third-party Defendant.

          ORDER

          PHILIP A. BRIMMER UNITED STATES DISTRICT JUDGE.

         This matter is before the Court on RE/MAX, LLC'S and Motto Franchising, LLC's Motion to Dismiss Counterclaims [Docket No. 61]. The Court has jurisdiction under 28 U.S.C. § 1332.

         I. BACKGROUND [1]

         Plaintiff RE/MAX, LLC (“RE/MAX”) is a real estate franchise company that has a network of franchisee real estate agents. Docket No. 56 at 16, ¶ 11. Defendant Quicken Loans Inc. (“Quicken Loans”) is a mortgage lender. Id. at 16-17, ¶ 12. In early 2014, RE/MAX and Quicken Loans entered into negotiations for a potential marketing alliance. Id. at 17, ¶ 13. At that time, plaintiff and defendant executed a NonDisclosure Agreement (the “NDA”). Id. After further negotiations, on July 9, 2015, RE/MAX and Quicken Loans executed a Strategic Marketing Alliance Agreement (the “Agreement”), which took effect on October 15, 2015. Id., ¶ 15. The Agreement required RE/MAX to provide marketing services to Quicken Loans in exchange for fees. Id., ¶ 16 and at 19, ¶ 22; see also Docket No. 56-1 .

         In September 2015, after Quicken Loans had a third party perform a valuation analysis of the Agreement, Quicken Loans told RE/MAX that the Agreement was overvalued. Docket No. 56 at 18, ¶¶ 18-19.[2] RE/MAX responded by making various representations about the extent of marketing services it would provide under the Agreement, such as statements about the number of unique monthly visitors to RE/MAX's website, and offered to provide additional services. Id. On November 10, 2015, the parties executed the First Amendment to Strategic Marketing Alliance Agreement (the “Amendment”). Id. at 19, ¶ 23. The Amendment requires RE/MAX to provide some of the additional marketing services it offered to provide, such as placing Quicken Loans' logos on RE/MAX's websites. Docket No. 56-3 at 2, ¶¶ (j)-(k). Quicken Loans claims that the representations that RE/MAX made before the parties signed the Amendment were knowingly false and that RE/MAX knew that it could not provide the additional services it offered. Docket No. 56 at 18-19, ¶¶ 20-21. Quicken Loans also claims that, during the course of performance under the Agreement, it disclosed confidential information and trade secrets to RE/MAX, but that RE/MAX failed to provide the marketing services required by the Agreement. Docket No. 56 at 20-21, ¶¶ 26, 30. RE/MAX sent invoices to Quicken Loans for services provided under the Agreement and Quicken Loans paid these invoices through the April 2016 invoice. Id. at 6-7, ¶ 15. On September 2, 2016, RE/MAX sent a letter to Quicken Loans stating that it was in default under the Agreement for failing to pay invoices. Id. at 7, ¶ 16.

         Two parallel lawsuits followed. On September 7, 2016, Quicken Loans filed a complaint against RE/MAX in the United States District Court for the Eastern District of Michigan. Quicken Loans Inc. v. RE/MAX, LLC, No. 2:16-cv-13233-DML-RSW, Docket No. 1 (E.D. Mich. Sept. 7, 2016). Twelve days later, RE/MAX filed this case. Docket No. 1. Both parties accuse the other of breaching the Agreement. RE/MAX alleges that Quicken Loans failed to pay amounts due under the Agreement. Docket No. 45 at 9, ¶ 29. Quicken Loans alleges that RE/MAX failed to provide services as required under the Agreement. Docket No. 56 at 29, ¶ 75.

         On October 25, 2016, RE/MAX launched Motto Mortgage, LLC (“Motto”) as a new venture; Motto is a wholly-owned subsidiary of RE/MAX. Docket No. 56 at 15, ¶ 7 and at 24, ¶ 41. Motto is a mortgage provider that provides services similar to those provided by Quicken Loans. See id. at 24-26, ¶¶ 42, 45. Quicken Loans named Motto as a third-party defendant in its counterclaims. Id. at 14-15, ¶ 3. Quicken Loans alleges that individuals who received Quicken Loans' confidential information and trade secrets while working at RE/MAX became executives at Motto and that RE/MAX used Quicken Loans' trade secrets in starting up Motto's operations. Id. at 25-27, ¶¶ 43, 49.

         On October 31, 2016, the Eastern District of Michigan transferred its case to this district pursuant to a mandatary forum selection clause in the Agreement. Quicken Loans Inc. v. RE/MAX, LLC, No. 16-cv-02696-PAB-NYW, Docket Nos. 1, 17 (the “transferred case”). On February 2, 2017, Quicken Loans filed a motion to amend its complaint in the transferred case, seeking to add claims for breach of the NDA against RE/MAX, misappropriation of trade secrets against RE/MAX, tortious interference with a contract against Motto, and misappropriation of trade secrets against Motto. Id., Docket No. 37. On April 10, 2017, Magistrate Judge Nina Y. Wang recommended that the motion to amend be granted in part and denied in part. Id., Docket No. 44 at 17-18. Specifically, she recommended that Quicken Loans be permitted to add a claim for breach of the NDA, but that the motion to amend be denied with respect to the other claims. Id.

         On May 2, 2017, the Court entered an order denying a motion to dismiss this case filed by Quicken Loans and denying a motion for consolidation filed by RE/MAX. Docket No. 53. Instead, the Court administratively closed the transferred case. Quicken Loans Inc. v. RE/MAX, LLC, No. 16-cv-02696-PAB-NYW, Docket No. 47. The Court acknowledged Judge Wang's recommendation on Quicken Loans' motion to amend in the transferred case, but did not rule on the motion to amend. Docket No. 53 at 2 n.1.

         On May 16, 2017, Quicken Loans filed its answer and counterclaims. Docket No. 56. Quicken Loans' counterclaims consist of the same nine claims that it sought to bring in the transferred case through its motion to amend, but with some added allegations about its trade secrets. Compare Docket No. 56 at 14-33 with Quicken Loans Inc. v. RE/MAX, LLC, No. 16-cv-02696-PAB-NYW, Docket No. 37-1 at 2-18. On June 6, 2017, RE/MAX and Motto (collectively, “movants”) filed the present motion to dismiss. Docket No. 61. They seek to dismiss Quicken Loans' second counterclaim, for fraudulent inducement of the Amendment, as well as Quicken Loans' sixth, seventh, eighth, and ninth counterclaims, which are the same as the four claims that Quicken Loans sought to add in the transferred case through its motion to amend. Id. at 3.

         II. STANDARD OF REVIEW

         Movants challenge the above-mentioned counterclaims for failure to state a claim under Fed.R.Civ.P. 12(b)(6). “The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is legally sufficient to state a claim for which relief may be granted.” Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (quoting Sutton v. Utah St. Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999)). In doing so, the Court “must accept all the well-pleaded allegations of the complaint as true and must construe them in the light most favorable to the plaintiff.” Alvarado v. KOB-TV, LLC, 493 F.3d 1210, 1215 (10th Cir. 2007). At the same time, however, a court need not accept conclusory allegations. Moffett v. Halliburton Energy Servs., Inc., 291 F.3d 1227, 1232 (10th Cir. 2002).

         Generally, “[s]pecific facts are not necessary; the statement need only ‘give the defendant fair notice of what the claim is and the grounds upon which it rests.'” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)) (omission marks omitted). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The “plausibility” standard requires that relief must plausibly follow from the facts alleged, not that the facts themselves be plausible. Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008). Nonetheless, “where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not shown - that the pleader is entitled to relief.” Iqbal, 556 U.S. at 679 (internal quotation marks and alteration marks omitted). Thus, even though modern rules of pleading are somewhat forgiving, “a complaint still must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory.” Bryson, 534 F.3d at 1286 (alteration marks omitted).

         III. ANALYSIS

         A. Fraudulent Inducement Against RE/MAX

         Movants argue that Quicken Loans' fraudulent inducement claim must be dismissed for three reasons: (1) due to the economic loss doctrine, (2) because Quicken Loans does not allege damages resulting from the alleged misrepresentations inducing the Amendment, and (3) because of the integration clause in the Agreement. Docket No. 61 at 4-7.

         1. Economic Loss Doctrine

         “Under the economic loss doctrine, ‘a party suffering only economic loss from the breach of an express or implied contractual duty may not assert a tort claim for such a breach absent an independent duty of care under tort law.'” Spring Creek Expl. & Prod. Co., LLC v. Hess Bakken Investments II, LLC, --- F.3d ----, No. 17-1010, 2018 WL 989586, at *10 (10th Cir. Feb. 21, 2018) (quoting Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1264 (Colo. 2000)).[3] Courts must initially identify “the source of the duties of the parties.” Town of Alma, 10 P.3d at 1262. “Tort obligations generally arise from duties imposed by law, ” while “[i]n contrast, contract obligations arise from promises made between parties.” Id. (“‘A breach of a duty which arises under the provisions of a contract between the parties must be redressed under contract, and a tort action will not lie.'” (quoting Tommy L. Griffin Plumbing & Heating Co. v. Jordan, Jones & Goulding, Inc., 463 S.E.2d 85, 88 (S.C. 1995))).[4] As the Colorado Supreme Court made clear, the focus should not be on the nature of the loss, i.e., whether it is economic, but rather on the source of the duty. Id. at 1262 n.8 (“[W]e believe that a more accurate designation of what is commonly termed the ‘economic loss rule' would be the ‘independent duty rule.'”). In order to avoid the application of the economic loss rule, one must not only identify an independent duty, but must also assert a tort claim based on that independent duty.

         Quicken Loans claims that its fraudulent inducement claim is not barred by the economic loss rule because the “fraudulent representations that RE/MAX made to Quicken Loans were separate from the Agreement and Amendment [and] were not memorialized in the Amendment.” Docket No. 71 at 12.[5] The Court agrees in part. Under Colorado law “[i]t is well established that in some circumstances a claim of negligent misrepresentation based on principles of tort law, independent of any principle of contract law, may be available to a party to a contract.” Keller v. A.O. Smith Harvestore Prod., Inc., 819 P.2d 69, 72 (Colo. 1991) (citations omitted). This same principle applies to fraudulent misrepresentations. See id. (citing Formento v. Encanto Bus. Park, 744 P.2d 22, 26 (Ariz. App. 1987)). Accordingly, a party's “misrepresentation of material facts prior to the execution of an agreement may provide the basis for an independent tort claim.” Id.[6] Movants note similarities in language between Quicken Loans' breach of contract claim and its fraudulent inducement claim, but these similarities do not necessarily show that the two claims arise from the same duty. See Docket No. 61 at 5-6. As the Colorado Supreme Court noted, misrepresentation claims are “based not on principles of contractual obligation but on principles of duty and reasonable conduct.” Keller, 819 P.2d at 73 (citing Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041, 1043 (Colo. 1983)). Thus, a party's obligations not to use misrepresentations to induce a contract are independent of the party's obligations under the resulting contract. Id.; Van Rees v. Unleaded Software, Inc., 373 P.3d 603, 605 (Colo. 2016) (“[P]re-contractual misrepresentations are distinct from the contract itself, and may form the basis of an independent tort claim.” (citing Keller, 819 P.2d at 72)). However, “the purpose of the economic loss rule is to, among other things, allow the parties to ‘reliably allocate risks and costs during their bargaining [and] encourage the parties to build the cost considerations into the contract because they will not be able to recover economic damages ...


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