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Enhance-It, L.L.C. v. Am. Access Techs., Inc. - 413 F. Supp. 2d 626 (D.S.C. 2006)

Rule:

For a motion to amend to be denied for futility, the amendment must be clearly insufficient or frivolous on its face.

Facts:

Plaintiff Enhance-It, L.L.C.'s (Enhance-It) is a South Carolina limited liability company that purchased ultraviolet lighting products from Defendant American Access Technologies, Inc. (AAT) and AAT's predecessor in interest. In its Second Amended Complaint, Enhance-It alleged that AAT shipped it defective goods, and asserted causes of action for (1) breach of contract, (2) negligence, (3) fraud and misrepresentation, (4) breach of warranty of merchantability, (5) breach of warranty of fitness for particular use, (6) breach of express warranty, and (7) breach of contract accompanied by a fraudulent act. In an order dated October 5, 2005, the court dismissed Enhance-It's Second (negligence), Third (fraud and misrepresentation), and Seventh (breach of contract accompanied by fraudulent act) causes of action. The court dismissed the Third and Seventh causes of action because the Second Amended Complaint did not include specific factual allegations sufficient to meet the heightened pleading requirements of Rule 9(b)

On October 19, 2005, based upon the parties' agreement and consent, the court entered an Amended Scheduling Order. Under this Order, the parties had until December 1, 2005 to file motions to amend their pleadings. Accordingly, on December 1, 2005, Enhance-It filed a Motion to Amend the Second Amended Complaint and attached a proposed Third Amended Complaint. This Third Amended Complaint attempts to correct those deficiencies of the Second Amended Complaint that prompted the district court to dismiss Enhance-It's fraud and breach of contract accompanied by a fraudulent act causes of action.

Issue:

Should Enhance-It's motion be denied because it was futile?

Answer:

No

Conclusion:

AAT argued that Enhance-It's motion should be denied because it was futile. However, AAT's representation that the ballasts it sold to Enhance-It had been tested for a year, regardless of the results of those tests, was a representation of fact, not opinion. Accordingly, if the ballasts had, in fact, not been tested, representing that they had been tested was a false representation of a pre-existing fact that could serve as the basis for a fraud cause of action. Thus, the complaint alleged the necessary elements of fraud such that the proposed amendment was not obviously futile. Further, Enhance-It relied upon that allegedly untrue statement in continuing contractual relations with AAT. Thus, Enhance-It had alleged that AAT violated a duty imposed by tort law (i.e., the duty not to commit fraud). Accordingly, AAT was not entitled to the protection of the economic loss rule, which protected only those defendants who had breached only contractual duties. Should the matter proceed to trial, Enhance-It was permitted to plead and prove both fraud and breach of contract causes of action, although Enhance-It would ultimately be limited to one recovery.

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