UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

ALI AFSHAR, an individual, ET AL.,

Plaintiffs,

VS.

ROBERT NORWOOD, an individual,

ET AL.,

Defendants.

)

)

)

) CIVIL ACTION NO.

)

) 3:05-CV-1625-G

)

) ECF

)

)

MEMORANDUM OPINION AND ORDER

Before the court is the motion of the defendants Robert Norwood

(“Norwood”) and Norwood Autocraft, Inc. (“Norwood Auto”) (collectively,

“defendants”) to dismiss the complaint of the plaintiffs Ali Afshar (“Afshar”), Easy

Street Motorsports, Inc. (“Easy Street”), and Easy Street Motorsports Racing, Inc.

(“Easy Street Racing”) (collectively, “plaintiffs”) for failure to state a claim on which

relief can be granted. For the reasons stated below, the motion is granted.

I. BACKGROUND

Since 1989, California resident Afshar has been a sports race car driver, driving

domestic sports vehicles until 2001 when he began driving exclusively for Subaru. 

 

 Case 3:05-cv-01625-G Document 29 Filed 12/14/05 Page 1 of 10 PageID 188
- 2 -

Complaint ¶¶ 3, 10-11. Sometime in late 2003, Afshar met Texas resident Norwood

at a race held in Maplegrove, Pennsylvania. Id. ¶ 7, 14. After that meeting, Afshar

learned that Norwood was involved with the design and construction of other pro

racing cars. Id. ¶ 15. Thinking this would be a profitable relationship, Afshar and

Norwood engaged in multiple conversations in which it was decided that Norwood

would help design and construct alterations to Afshar’s current race car. See generally

Complaint. After giving Afshar estimates for the labor and parts, Norwood began

work. See id. ¶¶ 21-25. Unfortunately, though, the estimates proved to be too

conservative, id. ¶ 25, and the car did not perform as allegedly promised. Id. ¶ 27. 

Other difficulties developed between Afshar and Norwood, resulting in delayed

deliveries, additional costs, and poor performance. See generally Complaint ¶¶ 27-56. 

Despite these problems, however, Norwood offered to build Afshar a 2000-pound Pro

Subaru for another class of racing. Id. ¶¶ 58-59. Afshar represented to his sponsors

the possibilities of this new vehicle, received approval, and accepted Norwood’s offer. 

Id. ¶ 62-64. However, similar to the situation with Afshar’s current race car, this

situation devolved into disaster. See generally Complaint ¶¶ 71-96.

Plaintiffs brought this suit against Norwood and Norwood Auto for (1) breach

of contract, (2) fraud, (3) negligent misrepresentation, and (4) accounting. See

Complaint ¶¶ 102-126. Against this backdrop, the court must examine the

defendants’ motion to dismiss the plaintiffs’ claims for failure to state a claim upon

 

 Case 3:05-cv-01625-G Document 29 Filed 12/14/05 Page 2 of 10 PageID 189
1 Subject matter jurisdiction is based on diversity of citizenship.

Accordingly, these claims are controlled by Texas law. See Erie Railroad Company v.

Tompkins, 304 U.S. 64, 78 (1938); Rogers v. Corrosion Products, Inc., 42 F.3d 292, 295

(5th Cir.), cert. denied, 515 U.S. 1160 (1995). 

- 3 -

which relief may be granted.1 It should be noted, however, that the defendants’

motion addresses only two of the four claims: fraud and negligent misrepresentation. 

See generally Defendants’ Motion to Dismiss Pursuant to Fed. R. Civ. P. 12(b). 

Accordingly, the court will discuss only whether those two claims should be

dismissed.

II. ANALYSIS

A. Standard for Dismissal Under Rule 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) authorizes dismissal of a complaint

for “failure to state a claim upon which relief can be granted.” FED. R. CIV. P.

12(b)(6). There are two primary principles that guide the court’s determination of

whether dismissal under Rule 12(b)(6) should be granted. First, a motion under Rule

12(b)(6) should be granted only if it appears beyond doubt that the nonmovants

could prove no set of facts in support of their claims that would entitle them to relief. 

Conley v. Gibson, 335 U.S. 41, 45-46 (1957); Leffall v. Dallas Independent School District,

28 F.3d 521, 524 (5th Cir. 1994); see also Kaiser Aluminum & Chemical Sales, Inc. v.

Avondale Shipyards, Inc., 677 F.2d 1045, 1050 (5th Cir. 1982) (citing WRIGHT &

MILLER, FEDERAL PRACTICE AND PROCEDURE: CIVIL § 1357 at 598 (1969), for the

proposition that “the motion to dismiss for failure to state a claim is viewed with

 

 Case 3:05-cv-01625-G Document 29 Filed 12/14/05 Page 3 of 10 PageID 190
- 4 -

disfavor and is rarely granted”), cert. denied, 459 U.S. 1105 (1983). Second, the court

must accept all well-pleaded facts as true and view them in the light most favorable to

the nonmovants. Capital Parks, Inc. v. Southeastern Advertising and Sales System, Inc., 30

F.3d 627, 629 (5th Cir. 1994); Norman v. Apache Corporation, 19 F.3d 1017, 1021

(5th Cir. 1994); Chrissy F. by Medley v. Mississippi Department of Public Welfare, 925

F.2d 844, 846 (5th Cir. 1991). However, conclusory allegations and unwarranted

factual deductions will not suffice to prevent a motion to dismiss. United States ex rel.

Willard v. Humana Health Plan of Texas Inc., 336 F.3d 375, 379 (5th Cir. 2003). 

If it appears that a more carefully drafted pleading might state a claim upon

which relief could be granted, the court should give the claimant an opportunity to

amend his claim rather than dismiss it. Friedlander v. Nims, 755 F.2d 810, 813 (11th

Cir. 1985); Taylor v. Dallas County Hospital District, 976 F.Supp. 437, 438 (N.D. Tex.

1996). Furthermore, leave to amend a pleading should be freely given and should be

granted unless there is some justification for refusal. Willard, 336 F.3d at 386.

B. Fraud

Although under the general pleading requirements of FED. R. CIV. P. 8(a) the

complaint need only contain “a short and plain statement of the claim,” a claim for

fraud must meet the more stringent requirements of FED. R. CIV. P. 9(b). Under Rule

9(b), the circumstances constituting the alleged fraud “shall be stated with

particularity.” FED. R. CIV. P. 9(b). The elements of a fraud claim are: (1) a

 

 Case 3:05-cv-01625-G Document 29 Filed 12/14/05 Page 4 of 10 PageID 191
- 5 -

misstatement or omission (2) of material fact (3) made with the intent to defraud the

plaintiff (4) on which the plaintiff relied, and (5) which proximately caused the

plaintiff’s injury. Williams v. WMX Technologies, Inc., 112 F.3d 175, 177 (5th Cir.),

cert. denied, 522 U.S. 966 (1997). Pleading fraud with particularity requires that a

plaintiff specify the statements contended to be fraudulent, identify the speaker, state

when and where the statements were made, and explain why the statements were

fraudulent. Id.; see also Benchmark Electronics, Inc. v. J.M. Huber Corporation, 343 F.3d

719, 724 (5th Cir. 2003) (stating that Rule 9(b) requires the plaintiff to lay out “the

who, what, when, where, and how” of the alleged fraud); United States ex rel. Russell v.

Epic Healthcare Management Group, 193 F.3d 304, 308 (5th Cir. 1999). If a plaintiff’s

fraud claim is not pleaded with particularity, however, the plaintiff should be given an

opportunity to amend. Hart v. Bayer Corporation, 199 F.3d 239, 248 n.6 (5th Cir.

2000).

In the case sub judice, the plaintiffs’ claims fail for lack of particularity. In their

response to the defendants’ motion, the plaintiffs have pointed to eight paragraphs in

their complaint, asserting that these paragraphs adequately state the time and place of

the fraudulent statements. See Plaintiffs’ Response to Defendants’ Motion to

Dismiss, and Supporting Brief (“Response”) ¶ 1.6 (citing Complaint ¶¶ 14, 25, 36,

44, 50, 58, 64, 68). However, upon review, these paragraphs are woefully inadequate

to satisfy Rule 9(b). Rather than attempting to specify the date on which the

 

 Case 3:05-cv-01625-G Document 29 Filed 12/14/05 Page 5 of 10 PageID 192
- 6 -

allegedly fraudulent statements were made, the plaintiffs merely allege vague time

periods. See Complaint ¶¶ 14 (“late 2003”), 25 (“After Norwood received the car

. . .”), 36 (“In or about March of 2004 . . .”), 44 (“From April through June . . .”), 50

(“During the middle of the year and thereafter . . .”), 58 (“In or about July of

2004 . . .”), 64 (“When the project was approved . . .”), 68 (not designating time of

statement, but referencing the due date of project). Nor do the paragraphs fare any

better in alleging the locations of the statements. See generally Complaint ¶¶ 1-101

(neglecting to allege whether statements were made in California or Texas and over

the telephone or through other means of communication). For these reasons alone,

the plaintiffs’ fraud claim must be dismissed for failure to comply with Rule 9(b).

In addition, although the Fifth Circuit has never “articulated the requirements

of Rule 9(b) in great detail,” Guidry v. Bank of LaPlace, 954 F.2d 278, 288 (5th Cir.

1992), it has stated that, to plead scienter, more than a “simple allegation” of

fraudulent intent is required. American Realty Trust, Inc. v. Hamilton Lane Advisors, Inc.,

115 Fed. Appx. 662, 667 (5th Cir. 2004) (quoting Tuchman v. DSC Communications

Corporation, 14 F.3d 1061, 1068 (5th Cir. 1994)). Instead, a “plaintiff must set forth

specific facts that support an inference of fraud.” Id. Here, the plaintiffs fail to meet

this requirement. Nowhere in the nineteen-page complaint do the plaintiffs allege

factual bases for the proposition that defendants knew they were misleading

plaintiffs, beyond the “simple allegation” that “[w]hen Defendants made these

 

 Case 3:05-cv-01625-G Document 29 Filed 12/14/05 Page 6 of 10 PageID 193
- 7 -

statements, said statements were false, and Defendants knew they were false. In

making these statements, Defendants intended to deceive Plaintiffs.” Complaint

¶ 111. This being insufficient to comply with the pleading requirements of Rule 9(b),

the plaintiffs’ fraud claim must be dismissed.

C. Negligent Misrepresentation

For motions to dismiss challenging negligent misrepresentation claims, courts

have applied either the lenient Rule 8 pleading requirements or the more strict Rule

9(b) criteria. See American Realty, 115 Fed. Appx. at 668-69 (holding that this court

court improperly dismissed a negligent misrepresentation claim on the basis that it

did not satisfy Rule 9(b) pleading requirements); General Electric Capital Corporation v.

Posey, 415 F.3d 391, 396-97 (5th Cir. 2005) (applying Rule 8 pleading requirements

to negligent misrepresentation claim); but see Benchmark Electronics, 343 F.3d at 723

(applying Rule 9(b) because plaintiff’s “fraud and negligent misrepresentation claims

[were] based on the same set of alleged facts”); see also Williams, 112 F.3d at 177. 

The rule has developed in the Fifth Circuit that a plaintiff’s claims must be dismissed

if “the inadequate fraud averment is so intertwined with the negligent

misrepresentation claim that it is not possible to describe a simple redaction that

removes the inadequate fraud averment while leaving behind a viable negligent

misrepresentation claim.” See Nazareth International, Inc. v. J.C. Penney Corporation,

Inc., No. 3:04-CV-1265, 2005 WL 1704793, at *3-4 (N.D. Tex. July 19, 2005)

 

 Case 3:05-cv-01625-G Document 29 Filed 12/14/05 Page 7 of 10 PageID 194
2 The court also notes that the plaintiffs may have waived any argument

that their negligent misrepresentation claim should be analyzed under the more

lenient requirements of Rule 8. See Williams, 112 F.3d at 177; Kougl v. Xspedius

Management Company of Dallas/Fort Worth, L.L.C., No. 3:04-CV-2518, 2005 WL

1421446, at *6 (N.D. Tex. June 1, 2005) (Fitzwater, J.) (noting that Rule 9(b)

applies if “plaintiff waives arguments to the contrary”); see generally Response

(neglecting to treat their fraud and negligent misrepresentation claims separately in

response to the defendants’ motion to dismiss).

- 8 -

(Lynn, J.) (discussing evolution of pleading requirements for negligent

misrepresentation after Benchmark Electronics, 343 F.3d 719, and American Realty, 115

Fed. Appx. 662).

Here, the plaintiffs’ fraud and negligent misrepresentation claims are based on

the same set of alleged facts and generally grouped together under the heading “The

Subaru Street Car Debacle and Fraud.” See Complaint ¶¶ 18-57; see also id. ¶ 116

(citing Complaint ¶¶ 1-44 as basis for negligent misrepresentation claim); id. ¶ 109

(citing Complaint ¶¶ 1-101 as basis for fraud claim). Because the plaintiffs’ fraud

averments are so intertwined with their negligent misrepresentation claim, the court

applies the particularity requirements of Rule 9(b).2

 See American Realty Trust, Inc. v.

Travelers Casualty and Surety Company of America, 362 F. Supp. 2d 744, 752-53 (N.D.

Tex. 2005) (Godbey, J.) (holding that dismissal pursuant to Rule 9(b) was

appropriate where the plaintiff merged fraud and reckless misrepresentation claims

into one paragraph and alleged reckless misrepresentation without specifically

indicating which claim(s) the allegation was intended to support).

 

 Case 3:05-cv-01625-G Document 29 Filed 12/14/05 Page 8 of 10 PageID 195
- 9 -

To state a cause of action for negligent misrepresentation under Texas law, the

plaintiffs must allege facts showing: (1) the defendants made a representation in the

course of their business, or in a transaction in which they have a pecuniary interest;

(2) the defendants supplied “false information” for the guidance of others in their

business; (3) the defendants did not exercise reasonable care or competence in

obtaining or communicating the information; and (4) the plaintiffs suffered pecuniary

loss by justifiably relying on the representation. See Clardy Manufacturing Company v.

Marine Midland Business Loans Inc., 88 F.3d 347, 357 (5th Cir. 1996) (citing Federal

Land Bank Association of Tyler v. Sloane, 825 S.W.2d 439, 442 (Tex. 1991)), cert.

denied, 519 U.S. 1078 (1997). In addition, the “false information” supplied must

have been a misstatement of existing fact, Clary Corporation v. Smith, 949 S .W.2d

452, 463 (Tex. App.--Fort Worth 1997, writ denied), rather than a statement of

future intention. Airborne Freight Corporation, Inc. v. C.R. Lee Enterprises, Inc., 847

S.W.2d 289, 294 (Tex. App.--El Paso 1992, writ denied).

For the reasons stated above in the discussion regarding fraud, the plaintiffs’

allegations of negligent misrepresentation fail for lack of particularity. Moreover,

several of the plaintiffs’ allegations of negligent misrepresentation fail because they

are statements of future intention, rather than misstatements of existing fact. See

Complaint ¶¶ 20, 23. Accordingly, they must be dismissed for failure to state a claim. 

See Infomart (India), Pvt., Ltd. v. Metrowerks Corporation, No. 3:04-CV-1299, 2005 WL

 

 Case 3:05-cv-01625-G Document 29 Filed 12/14/05 Page 9 of 10 PageID 196
- 10 -

292433, at *5 (N.D. Tex. Feb. 7, 2005) (Godbey, J.) (holding that the defendant’s

statement that it would provide the plaintiff with a project status report and the

software stack within a particular time period was a statement of future intention and

warranted dismissal).

III. CONCLUSION

For the reasons stated above, the defendants’ motion to dismiss is GRANTED

with respect to the plaintiffs’ fraud and negligent misrepresentation claims. However,

because it appears that a more carefully drafted complaint might state claims upon

which relief could be granted, the plaintiffs shall have leave to file and serve, not later

than January 20, 2006, an amended complaint to remedy the Rule 9(b) deficiencies

in their pending complaint; if no such amended complaint is filed and served, these

claims will be deemed dismissed without further notice. If the plaintiffs duly amend

their complaint, the defendants may reassert their motion to dismiss if they believe

that the amended complaint fails to cure the defects in the original complaint noted

above.

SO ORDERED.

December 14, 2005.

 

 Case 3:05-cv-01625-G Document 29 Filed 12/14/05 Page 10 of 10 PageID 197