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Moneygram Payment Systems, Inc. v. Prima Check Cashing

June 9, 2006


The opinion of the court was delivered by: Gerard E. Lynch, District Judge


Plaintiff Moneygram Payment Systems, Inc. filed this contract action to recover funds allegedly owed to it by Prima Check Cashing, Inc., an authorized seller of MoneyGram products, under a Trust Agreement that governed the entities' relationship. In addition to Prima, the defendants are Prima's owners, Phillip, Dominic, and Michael Colasuonno, and their wives (collectively, "the Colasuonnos"), all of whom guaranteed Prima's obligations to MoneyGram under the Trust Agreement; and American Armored Car, Ltd. and American Compaction Systems, Inc., two other companies owned by the Colasuonnos, which allegedly received fraudulent transfers of the funds owing to MoneyGram. (MoneyGram Mem. 3-4.)

The Colasuonnos and corporate defendants filed separate answers to the complaint. The corporate defendants' answer includes six counterclaims seeking compensatory and punitive damages totaling over $90 million. The gravamen of these counterclaims is that MoneyGram, which terminated the Trust Agreement prior to commencing this action, did so unlawfully and maliciously. The Colasuonnos' answer asserts similar counterclaims. (Corp. Ans. ¶¶ 50-74; Colas. Ans. ¶¶ 84-107.) MoneyGram now moves to dismiss under Fed. R. Civ. P. 12(b)(6), or in the alternative to strike under Rule 12(f), the majority of these counterclaims. For the following reason, the motion will be granted in part and denied in part.


Under Rule 12(b)(6), the question is whether defendants' counterclaims are legally insufficient, and under Rule 12(f), whether they are redundant or contain any impertinent matter. Goldman v. Belden, 754 F.2d 1059, 1065 (2d Cir. 1985); Avnet, Inc. v. Am. Motorists Ins. Co., 115 F.R.D. 588, 592 (S.D.N.Y. 1987).

I. Tort Liability and Punitive Damages

MoneyGram first seeks dismissal of the fifth and sixth counterclaims in the corporate defendants' answer. These counterclaims, under which defendants seek punitive damages, allege that MoneyGram's termination of the Trust Agreement was "willful and malicious" and caused the defendants "significant and unwarranted damage." (Corp. Ans. ¶¶ 69-74.) Defendants note that the termination occurred during the height of the check cashing "season," (id. ¶ 62) and was "a component of a systematic attempt to financially cripple" them (id. ¶¶ 64, 67). MoneyGram argues that these claims sound in contract, and that punitive damages are unavailable on a contract claim, and may only be sought where a breach of contract constitutes, or is accompanied by, a tort that independently warrants such damages. Hern v. Bankers Life Cas. Co., 133 F.Supp.2d 1130, 1138 (D. Minn. 2001) (citing Minnesota cases). (MoneyGram Mem. 10-11, 13-14.)*fn1 The corporate defendants agree with MoneyGram's legal analysis, but respond that its "exceptional," "willful," and "malicious" termination of the agreement was indeed tortious in nature. (Corp. Mem. 13-14; Corp. Ans. ¶ 73.)

A willful, bad-faith, or malicious breach of contract, which is all that defendants allege, does not by itself suffice to convert a contract claim into a tort claim. See, e.g., Moore v. John E. Blomquist, Inc., 256 N.W.2d 518, 518 (Minn. 1977); Cauff Lipman & Co. v. Apogee Fin. Group, Inc., No. 90 Civ. 5970, 1991 WL 64197, at *1 (S.D.N.Y. Apr. 13, 1991) (interpreting New York law). Nevertheless, under exceptional circumstances, a breach of contract can give rise to a tort claim, for example where the law imposes on a contracting party an independent duty of care as an incident of his relationship with the other party, see, e.g., Wild v. Rarig, 302 Minn. 419, 440-41 (1975) (common carrier's duty to passengers); Sommer v. Fed. Signal Corp., 79 N.Y.2d 540, 552-53 (1992) (fire alarm company's duty to building owner), or where the breach results in physical damage to person or property, or in an "abrupt, cataclysmic occurrence," id. at 552. See generally W. Page Keeton et al., Prosser and Keeton on Torts, § 92, at 655-66 (5th ed. 1984) (providing guideposts for distinguishing tort and contract liability). While this case seems far-removed from those in which a tort claim has been held to exist, the distinction between tort and contract "has become an increasingly difficult distinction to make," id. § 92, at 655, and invariably turns on a review of the particular circumstances of the case at hand. It is thus ill-suited for resolution at the pleadings stage. Accordingly, the Court declines to dismiss defendants' fifth and sixth counterclaims.

However, the third, fourth, fifth, and sixth counterclaims in the corporate defendants' answer are redundant, in that they each allege as a tort MoneyGram's termination of the Trust Agreement, but differ only in the type of damages sought. For the sake of clarity, these claims should be consolidated.*fn2 See Avnet, 115 F.R.D. at 592 (striking "redundant" claim, holding all legal theories for particular brand of liability "should, for the sake of clarity, be included in a single claim for relief"). Accordingly, the third, fourth, fifth, and sixth counterclaims in the corporate defendants' answer are stricken under Rule 12(f) with leave to replead under Rule 15(a).

II. Armored Car's and American Compaction's Claims

MoneyGram next seeks dismissal of the counterclaims advanced on behalf of Armored Car and American Compaction, noting that these entities are not parties to the Trust Agreement.

(MoneyGram Mem. 11-13.)*fn3 The corporate defendants respond that under the Trust Agreement, the term "Trustee" is defined to include not only Prima, but also Prima's "affiliates." (Trust Agreement ¶ 1.) The term "affiliates," in turn, is defined to include "any business controlling, controlled by or under common control" as Prima. (Id.)*fn4 Defendants reason that because the Colasuonnos are "officers and/or owners" of all three corporations, the three companies are "under common control" and collectively constitute the "Trustee" referred to by the agreement. (Corp. Mem. 15-16.) MoneyGram generally denies that Armored Car and American Compaction are Prima affiliates, and in its reply brief, notes that neither company signed the Trust Agreement, which it deems fatal to any claim that these entities are parties to that agreement. (Reply 6-7.)

Whether there is sufficient evidence of common control between Prima, Armored Car, and American Compaction, such that they are "affiliates" under the Trust Agreement, and whether their lack of signature is in any event fatal to their claim to party status, cf. Thompson-CSF, S.A. v. Am. Arbitration Assoc., 64 F.3d 773, 776 (2d Cir. 1995) (noting, in arbitration context, that nonsignatory may be bound to agreement under "ordinary principles of contract and agency," such as corporate-veil piercing/alter-ego analyses), are factual questions that cannot be resolved at this stage of the proceedings. The Court will thus permit these counterclaims to proceed. Nevertheless, the Court observes that defendants may elect to remove them on their own. MoneyGram points out that defendants' argument is a double-edged sword: if Armored Car and American Compaction, along with Prima, constitute the "Trustee" referred to in the Agreement, then MoneyGram can directly sue Armored Car and American Compaction for breach of the Trustee's obligations, just as it has sued Prima, and seek recovery from them of the alleged $7 million in unpaid debt under the agreement, and any ...

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