Essay 4711 Flashcards
Essay 4711
Buyer, who was living in New York, and Seller, who was living in California, entered into a valid contract, agreeing to buy and sell a painting claimed to be an original Rothko, supposedly worth $1 million, for that amount. In a separate valid contract, Buyer agreed to buy from Seller a parcel of California real property worth $5 million, for that amount. Buyer and Seller completed the purchase of the painting on June 1; they were to complete the purchase of the real property on June 30.
On June 15, Buyer resold the painting, but obtained only $200, because the painting turned out to be a fake. Buyer promptly notified Seller of his intent to sue Seller for damages of $1 million. Seller then informed Buyer that Seller would not go through with the purchase of the real property.
Buyer filed suit against Seller in federal court in California. Buyer claimed fraud as to the painting, alleging only that Seller committed “fraud in the supposed value,” and sought $1 million in damages. Buyer also claimed breach of contract as to the real property, and sought specific performance. Buyer demanded trial by jury on all issues.
- May Buyer join claims for fraud and breach of contract in the same suit against Seller? Discuss.
- Is Buyer’s allegation sufficient to state a claim for fraud involving the painting? Discuss.
- Does the federal court have subject matter jurisdiction over the suit? Discuss.
- May the federal court apply California law to decide the breach of contract claim involving the real property? Discuss.
- On what issues, if any, would Buyer be entitled to a jury trial? Discuss.
SAMPLE OUTLINE OF ISSUES
- May Buyer join claims for fraud and breach of contract?
Joinder of Claims
- Is Buyer’s allegation sufficient to state a claim for fraud?
Well-Pleaded Complaint – 12(b)(6)
Notice Pleading
- Subject matter jurisdiction over the suit?
SMJ: Fraud Claim – Diversity of Citizenship
SMJ: Breach of Contract Claim – Diversity of Citizenship
SMJ: Breach of Contract Claim – Supplemental Jurisdiction
- May the federal court apply CA law to decide the breach-of-contract claim?
Erie Doctrine
Default Choice of Law for Real Property Claims
- On what issues would Buyer be entitled to a jury trial?
Seventh Amendment Right to a Civil Jury Trial
SAMPLE ANSWER
- May Buyer join claims for fraud and breach of contract?
Joinder of Claims
Rule 18 allows a single plaintiff to join all claims against a single defendant. To join a claim under Rule 18, the court must have subject matter jurisdiction over it. The issue of subject matter jurisdiction (SMJ) is analyzed more fully below in interrogatory three.
Here, Buyer is suing Seller for fraud based on the sale of an alleged fake Rothko painting and breach of a land sales contract based on Seller’s refusal to go through with the sale of real estate in California (CA). Because Buyer is a single plaintiff suing Seller, who is single defendant, he may join both claims against Seller in the same suit, regardless of whether they arise out of the same transaction or occurrence. Thus, assuming there is a basis for SMJ for each claim, Buyer may join both claims in the same suit.
- Is Buyer’s allegation sufficient to state a claim for fraud?
Well-Pleaded Complaint – 12(b)(6)
Under Rule 12(b)(6), a claim for relief can be dismissed if it fails to allege facts sufficient to support a cognizable claim. In deciding a motion under Rule 12(b)(6), the U.S. Supreme Court established a two-step analysis for adjudicating a motion to dismiss. First, the court must identify and reject legal conclusions unsupported by factual allegations. This includes mere conclusory statements and assertions devoid of facts. Second, the court should assume the truth or veracity of well-pleaded factual allegations and should include a “context specific” analysis that draws on the court’s judicial experience and common sense to determine whether the allegations plausibly give rise to an entitlement of relief.
Here, Buyer alleged that Seller committed “fraud in the supposed value.” No additional facts were pleaded. While Buyer identified the cause of action as fraud, he did not support it with any factual allegations.
To support fraud, the plaintiff would normally need to state facts that show that the defendant made a false representation, scienter, an intent to induce reliance, causation, justifiable reliance, and damages. This would require facts that prove that Seller made a false representation to Buyer in relation to the authenticity or value of the painting that he sold to Buyer. The fact that Seller claimed that the painting was an original Rothko, supposedly worth $1 million when it was a fake worth $200 shows that Seller knowingly made a false representation. Additional facts that show scienter on Seller’s part and an intent to induce Buyer to enter into a contract for $1 million dollars are the type of facts that should be alleged in the complaint. In addition, Buyer’s reliance was likely justifiable as he had no reason to suspect it was a fake, and only realized it was a fake until after he attempted to resell it. The statement “fraud in the supposed value” does not support any of the above noted elements required for fraud. It is a conclusory statement unsupported by facts, and thus will be stricken from the complaint. Without any further allegations, Buyer will not be able to meet the first step of the test.
Without any remaining factual allegations to plausibly support a case for fraud, there is no basis to show that Buyer is entitled to relief. Thus, it will not meet step two of the test, either.
Accordingly, Buyer’s allegation is not sufficient to state a claim for fraud, and would not survive a 12(b)(6) motion.
Notice Pleading
Federal courts require notice pleading, which means that the pleading must put the opposing party on notice of the claim by pleading facts supporting a plausible claim. Under Rule 8(a), the complaint must contain a statement of subject matter jurisdiction, statement of the claim, and a demand for relief. However, if the cause of action is for fraud, mistake, or special damages, then it must be pleaded with particularity or specificity.
In this case, the plaintiff is suing for fraud based on the sale of the fake painting to him by the defendant, and the allegation “fraud in supposed value” could arguably be a sufficient statement of the claim. However, because the cause of action is for fraud, putting the defendant on notice of the cause of action is insufficient. Rather, Buyer must plead the fraud claim with particularity. As explained above, the plaintiff failed to plead fraud with particularity because he only alleged “fraud in the supposed value” in the complaint, and did not include any of the required elements. Accordingly, the plaintiff did not meet the standard required for pleading fraud in the complaint.
Editor’s Note: 12(b)(6) motion and notice pleading are two different issues. Both are relevant because the question vaguely asked whether Buyer’s allegation was sufficient to state a claim for fraud. Full credit requires both issues, but you may still pass with only one of the issues, so long as there is a detailed analysis on why the allegation “fraud in the supposed value” is not sufficient.
- Subject Matter Jurisdiction over the suit?
SMJ
SMJ is the federal court’s power to hear a particular case. SMJ can either be based upon a federal question or diversity of citizenship. Here, fraud and breach of contract claims are not based upon a federal question. Therefore, the plaintiff will have to successfully argue diversity of citizenship as his basis for the suit.
Fraud Claim
Diversity of Citizenship
Diversity of Citizenship requires a showing of both complete diversity and that the amount in controversy exceeds $75,000.
Complete Diversity
All plaintiffs must be from a different domicile than all defendants. Here, Buyer is from New York while Seller is from California, a different domicile. Thus, complete diversity exists.
Amount in Controversy
The amount in controversy must exceed $75,000, exclusive of interest and costs. Buyer’s claim for fraud is for $1 million dollars, which exceeds the $75,000 threshold. Thus, this element is met.
Conclusion
In regards to the fraud cause of action, there is a basis under diversity of citizenship for SMJ.
Breach-of-Contract Claim
Diversity of Citizenship
See rule above.
Complete Diversity
See rule above. As analyzed above, complete diversity exists.
Amount in Controversy
See rule above. Here, while the parcel of land at issue is worth $5 million, Buyer is not seeking legal damages, but rather the remedy of specific performance. Specific performance can be valued by measuring the value of the benefit to the plaintiff or the cost of compliance for the defendant. If Buyer can establish that either the benefit to Buyer exceeds $75,000 or if the cost of compliance to Seller exceeds $75,000, then the AIC can be met. The benefit to Buyer is that he gets property worth $5 million. However, it will not cost Seller all that much to convey the property to Buyer. Thus, this element may be satisfied depending on the test the court will use to place a value on specific performance.
Rather than meeting the AIC requirement for each claim independently, Buyer could aggregate the fraud and breach of contract claims. If the action involves only one plaintiff and one defendant, then the total value of the plaintiff’s diversity claims is calculated to determine the amount in controversy. Here, Buyer is the only plaintiff and Seller is the only defendant. Therefore, Buyer can aggregate the fraud claim valued at $1 million and the breach of contract claim at whatever value the court determines in order to meet the AIC requirement.
Conclusion
SMJ likely exists for the breach of contract claim because Buyer is permitted to aggregate all state-law claims against a single defendant.
Supplemental Jurisdiction
Supplemental Jurisdiction gets non-federal, non-diversity claims into federal court. The test is whether the claim arises from a common nucleus of operative facts with the claim that originally got the case into federal court. If it does, Supplemental Jurisdiction will be granted. While the fraud and breach-of-contract claims did not stem from the exact same transaction or occurrence, it may be argued that the breach of contract claim only resulted from the threat of suit for the fraud claim, and thus at the very least emanated from a common nucleus of operative facts. Thus, if the breach of contract claim does not meet the AIC, then Buyer may be able to argue supplemental jurisdiction as a basis for SMJ.
Editor’s Note: While the sample answer separates out the analysis for the fraud claim from the breach-of-contract claim, you may analyze them together so long as there is a distinction being made in the amount in controversy element.
- May the federal court apply CA law to decide the breach-of-contract claim?
Erie Doctrine
Under the Erie doctrine, in a diversity case, federal courts must apply the substantive law of the state in which the district is located to nonfederal causes of action, and the procedural rules of the Federal Rules of Civil Procedure (“FRCP”). If it is difficult to determine if an issue is substantive or procedural, then the court will first determine if there is a conflict between state and federal law. If a conflict exists, then the court will look to see if there is a federal statute or rule covering the issue, and if there is one, the court will apply federal law. If none exists, then the court will determine whether federal common law rather than state law should apply by looking at whether failure to apply state law will lead to different outcomes.
Here, because the breach-of-contract claim is a nonfederal cause of action and it was filed in CA, the federal court must apply CA state substantive law. It is not difficult to determine if breach of a land sales contract is substantive or procedural, and thus there is no need to evaluate if a conflict exists. The federal court must apply CA law.
Default Choice of Law for Real Property Claims
The default choice-of-law for determining disputes over real property is to apply the law of the state in which the property is located. Because the property subject to the contract is located in CA, the default choice of law would be to apply CA state law to the claim. The facts do not indicate whether there was a choice of law clause in the real estate contract, and thus in the event there was none, then the default choice of law will be CA.
- On what issues would Buyer be entitled to a jury trial?
Seventh Amendment Right to a Civil Jury Trial
In federal court, the right to jury trial is governed by the Seventh Amendment. The Seventh Amendment preserves the right to a jury trial in federal court in all “suits of common law” where the amount in controversy exceeds $20. Under that provision, the right to a jury trial extends to legal issues, but not equitable issues. If the same case involves both legal and equitable issues, the legal issues should be tried first to the jury and the equitable claim to the court second. Further, the demand must be in writing and it must be filed with the court within 14 days after service of the last pleading directed to the issue that is sought to be tried by jury.
Here, Buyer is seeking legal damages totaling $1 million for the fraud case, which far exceeds the $20 threshold requirement. With regards to the breach-of-contract claim, he is seeking specific performance, which is an equitable claim. Thus, he is not entitled to a trial by jury for this claim. Accordingly, assuming that a timely, written demand was made, then the fraud claim for legal damages will be tried first by the jury, and then second the breach-of-contract claim for specific performance will be heard by the judge in a bench trial.
Joinder of Claims
Rule 18 allows a single plaintiff to join all claims against a single defendant. To join a claim under Rule 18, the court must have subject matter jurisdiction over it. The issue of subject matter jurisdiction (SMJ) is analyzed more fully below in interrogatory three.
Well-Pleaded Complaint – 12(b)(6)
&
WPC in the context of fraud
Under Rule 12(b)(6), a claim for relief can be dismissed if it fails to allege facts sufficient to support a cognizable claim. In deciding a motion under Rule 12(b)(6), the U.S. Supreme Court established a two-step analysis for adjudicating a motion to dismiss. First, the court must identify and reject legal conclusions unsupported by factual allegations. This includes mere conclusory statements and assertions devoid of facts. Second, the court should assume the truth or veracity of well-pleaded factual allegations and should include a “context specific” analysis that draws on the court’s judicial experience and common sense to determine whether the allegations plausibly give rise to an entitlement of relief.
To support fraud, the plaintiff would normally need to state facts that show that the defendant made a false representation, scienter, an intent to induce reliance, causation, justifiable reliance, and damages.
Notice Pleading
Federal courts require notice pleading, which means that the pleading must put the opposing party on notice of the claim by pleading facts supporting a plausible claim. Under Rule 8(a), the complaint must contain a statement of subject matter jurisdiction, statement of the claim, and a demand for relief. However, if the cause of action is for fraud, mistake, or special damages, then it must be pleaded with particularity or specificity.
SMJ [claim x] - Diversity of Citizenship
SMJ is the federal court’s power to hear a particular case. SMJ can either be based upon a federal question or diversity of citizenship. Here, fraud and breach of contract claims are not based upon a federal question. Therefore, the plaintiff will have to successfully argue diversity of citizenship as his basis for the suit.
Diversity of Citizenship.
Diversity of Citizenship requires a showing of both complete diversity and that the amount in controversy exceeds $75,000.
1 Complete Diversity
All plaintiffs must be from a different domicile than all defendants.
2 Amount in Controversy
The amount in controversy must exceed $75,000, exclusive of interest and costs.
SMJ: [claim x] – Supplemental Jurisdiction
Supplemental Jurisdiction gets non-federal, non-diversity claims into federal court. The test is whether the claim arises from a common nucleus of operative facts with the claim that originally got the case into federal court. If it does, Supplemental Jurisdiction will be granted.
Erie Doctrine
Under the Erie doctrine, in a diversity case, federal courts must apply the substantive law of the state in which the district is located to nonfederal causes of action, and the procedural rules of the Federal Rules of Civil Procedure (“FRCP”). If it is difficult to determine if an issue is substantive or procedural, then the court will first determine if there is a conflict between state and federal law. If a conflict exists, then the court will look to see if there is a federal statute or rule covering the issue, and if there is one, the court will apply federal law. If none exists, then the court will determine whether federal common law rather than state law should apply by looking at whether failure to apply state law will lead to different outcomes.
Default Choice of Law for Real Property Claims
The default choice-of-law for determining disputes over real property is to apply the law of the state in which the property is located.
Seventh Amendment Right to a Civil Jury Trial
In federal court, the right to jury trial is governed by the Seventh Amendment. The Seventh Amendment preserves the right to a jury trial in federal court in all “suits of common law” where the amount in controversy exceeds $20. Under that provision, the right to a jury trial extends to legal issues, but not equitable issues. If the same case involves both legal and equitable issues, the legal issues should be tried first to the jury and the equitable claim to the court second. Further, the demand must be in writing and it must be filed with the court within 14 days after service of the last pleading directed to the issue that is sought to be tried by jury.
