E-Alert Case Updates

Employer’s Motion to Dismiss Fraud Claim Was Denied

Jacobs v. HP Enterprise Servces, LLC
No.: JKB-12-3551 (D. Md., February 20, 2013)
by Kevin M. Cox, Associate
Semmes, Bowen & Semmes (www.semmes.com)

Plaintiff, Nick Jacobs (“Mr. Jacobs”) filed his lawsuit in Maryland state court based upon breach of contract, violation of the Maryland Wage Payment Act (MD. CODE ANN, LAB. & EMPL. § 30-596), and fraud. After Defendant HP Enterprise Services (“HP”) removed the case to federal court, it filed a motion to dismiss Count III of the complaint, as well as an answer to the other two counts.

Incorporating the rest of the complaint’s allegations, Count III alleged that during HP’s fiscal years 2011 and 2012, Mr. Jacobs was employed as a sales strategist and was to be paid commissions when his sales exceeded certain quotas set forth in two “Sales Letters” provided by HP. The Sales Letters, attached to the complaint, set forth metrics for determining commissions. The 2011 Sales Letter was provided to Mr. Jacobs on March 22, 2011, and was effective as of November 1, 2010. The 2012 Sales Letter was provided to Mr. Jacobs on December 15, 2011, and its effective date was November 1, 2011.

In March 2011, Mr. Jacobs agreed to a change in the quotas, which were then set at a higher level from those listed in the 2011 Sales Letter. Mr. Jacobs also received from HP a spreadsheet calculator by which his commissions could be calculated.

During the fiscal years 2011 and 2012, Mr. Jacobs made sales that, according to the Sales Letters and the spreadsheet calculators, earned him commissions. For fiscal year 2011, Mr. Jacobs calculated that he had earned $632,378 in commissions. HP paid Mr. Jacobs $397,130.27 in commissions for fiscal year 2011, refusing to pay him the additional $235,247.70 due to him.

For fiscal year 2012, Mr. Jacobs calculated that he had earned $288,675 in commissions. HP paid him $90,453.13 in commissions for fiscal year 2012, refusing to pay him the additional $198,221.87 allegedly due to him. The complaint further alleged that HP then retroactively changed the commission rate after Mr. Jacobs made sales. According to Mr. Jacobs, HP had no intention of paying Jacobs commissions at the rate set forth in the Sales Letters and HP intended to change the commission rate retroactively after he made sales.

The complaint further alleged that HP intended Mr. Jacobs to rely upon the Sales Letters’ methodology for computing sales commissions and thereby induced him to continue to make sales for HP. Mr. Jacobs claimed that he was entitled to rely and did rely upon the representation of HP that it would pay him the commission rate established in the Sales Letters. He then claimed that he sustained actual damages when he performed work for which he was promised a specific commission rate and for which HP had not paid him the promised commission.

HP attacked the claim of fraud, contending that Jacobs had failed to plead it with particularity and that he could not satisfy the elements of fraud. Under FED. R. CIV. P 9(b), a party alleging fraud “must state with particularity the circumstances constituting fraud . . . .” However, “[m]alice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.”

The “circumstances constituting fraud” include time, place, and contents of the fraudulent representation, the identity of the person making the misrepresentation, and what that person obtained. Based upon the complaint, the court concluded that Mr. Jacobs had adequately pled the particularity requirements.

The second part of HP’s argument was that the complaint failed to allege conduct constituting fraud. Under applicable Maryland law, the elements of a fraud claim are the following: (1) the defendant made a false representation to the plaintiff, (2) either the representation’s falsity was known to the defendant, or the representation was made with reckless indifference to its truth, (3) the misrepresentation was made for the purpose of defrauding the plaintiff, (4) the plaintiff had the right to rely upon the misrepresentation and did so rely, and (5) the plaintiff suffered compensable injury as a result of the misrepresentation.

The court held that Mr. Jacobs had provided specific factual allegations that could allow a plausible conclusion that HP defrauded Jacobs. Specifically, HP was alleged to have told Mr. Jacobs how his commissions were going to be computed, to have permitted Mr. Jacobs to make lucrative sales on HP’s behalf while Mr. Jacobs believed that he was going to be compensated at the rate in the Sales Letters, and to have retroactively changed the commission rate after the sales were made. These allegations, plus the permissibly general allegations regarding HP’s intent, knowledge, and state of mind were sufficient for Mr. Jacobs to proceed on Count III. Accordingly, Defendant’s motion for dismissal of Count III was denied.