Opinion ID: 563465
Heading Depth: 2
Heading Rank: 2

Heading: Smythe's Alleged Damages

Text: 12 Count II of Smythe's Counterclaim against the Plaintiffs alleged that Plaintiffs' actions and representations were intended to induce Smythe to undertake his promotion efforts prior to incorporation on behalf of Ironsides, Inc. and to induce him to advance monies, enter into new debt agreements, and reaffirm prior guarantee agreements ... [thereby incurring] obligations of $1,049,000.00.... Smythe asserts he has sustained actual damages in that amount. In addition, Smythe asserts an unspecified and conclusory allegation that the actions and representations of the [P]laintiffs were intended and calculated to mislead and to operate as a fraud and deceit on Smythe, entitling him to punitive damages of $1,000,000.00. 13 Clarifying these claims in his response to Plaintiffs' interrogatories, Smythe stated his actual damages consisted of a personal debt of $25,000 in favor of his father, Frederick J. Smythe (evidenced by demand notes), ... $74,000 in favor of Archer Green and $950,000 in personal debt guarantees that he reaffirmed to the Business Development Corporation of Kentucky and the Kentucky Industrial Development Finance Authority. The district court determined that Smythe's compensatory damage request, based upon these financial obligations, stated claims for restitution and indemnification. Finding that both these claims require satisfaction of the obligation by the obligor, and further finding no evidence that any of Smythe's creditors had actually sought to collect his debts, the court granted summary judgment. The court held that Smythe's damages, if any, were purely conjectural until a claim had been made and he had paid the debt. The court found that permitting recovery before Smythe's own liability had been determined could very well lead to the anomalous situation in which [Smythe] would reap a windfall in the form of an award of indemnity or restitution for an obligation which he has never incurred. 14 At oral argument, Smythe contended the district court mistakenly viewed his claim as one for indemnification and restitution. He asserted his theory of recovery rests in the alleged fraud executed on him by the Plaintiffs. We disagree. None of Smythe's allegations concerning his actual damages even suggests fraud in Plaintiffs' alleged inducements. If Smythe intended to state a claim for fraud, his allegations fall far short of the particularity required for that cause of action by Fed.R.Civ.P. 9(b). 3 See Arnold v. Arnold Corp., 920 F.2d 1269, 1279-80 (6th Cir.1990). 15 Smythe's Complaint fails to state a claim for fraud on which relief may be granted. Nonetheless, his factual assertions do suggest that Smythe assumed the alleged obligations on behalf of Ironsides, Inc. and that the benefit from the transactions actually inured to the corporation. Accordingly, we do not believe the district court erred in construing Count II as a claim for common law indemnification and restitution. 16 Relying on the monies advanced as the basis of his claim, Smythe also contends that the $25,000 he provided to cover pre-incorporation salaries for managers hired from Ironsides' predecessor, IRI, Inc., constitutes a solid loss to him that is immediate in nature. However, his response to Plaintiffs' interrogatory makes clear that this sum was not out of his own pocket because he borrowed it from his father. Smythe directs this Court to no evidence in the record indicating that Smythe's father has sought collection of the debt. Accordingly, the character of the alleged loss arising from the $25,000 payment is indistinguishable from the other losses Smythe has alleged--speculative and anticipatory. Finding no error in the legal principles applied by the district court, we hold accordingly that summary judgment dismissing this claim without prejudice was proper.