Salata Holding Company LLC v. Chepri LLC

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

EASTERN DIVISION

SALATA HOLDING COMPANY,

LLC,

:

Plaintiff,

Case No. 2:20-cv-4529

Judge Sarah D. Morrison

v.

Chief Magistrate Judge Elizabeth

P. Deavers

CHEPRI, LLC, :

Defendant.

OPINION AND ORDER

This matter is before the Court for consideration of Defendant Chepri, LLC’s

Motion to Dismiss. (Mot. to Dismiss, ECF No. 8.) Plaintiff Salata Holding Company,

LLC has filed its response (Resp., ECF No. 10), and Chepri replied (Reply, ECF No.

12). For the reasons set forth below, Chepri’s Motion to Dismiss is GRANTED IN

PART and DENIED IN PART

I. FACTUAL BACKGROUND

All well-pled factual allegations in the Complaint (Compl., ECF No. 1) are

considered as true for purposes of the Motion to Dismiss. See Gavitt v. Born, 835

F.3d 623, 639–40 (6th Cir. 2016). The following summary draws from the

allegations in the Complaint, and the documents integral to and incorporated

therein.

A. Engagement

Salata is a “fast-casual dining brand and franchisor” with approximately 85

locations across the country. (Compl., ¶ 7.) Its restaurants offer online ordering

through a website and mobile app. (Id.) In 2019, “Salata sought to modernize and

improve its consumer-facing technology suite, including its online ordering system,

customer loyalty program, and mobile app.” (Id., ¶ 9.) Salata engaged Chepri to

assist in that effort. (Id., ¶ 10.)

On September 27, 2018, Chepri submitted a formal proposal for Salata’s

consideration, describing its experience and capabilities relevant to the envisioned

“digital experience platform” (“DEP”) (the “Proposal”). (Compl. Ex. A, ECF No. 1-1,

PAGEID # 26–48.) The Proposal first identifies programming languages, database

technologies, and third-party e-commerce services with which the Chepri team has

experience. (Id., PAGEID # 28.) It then details Chepri’s “process” for completing a

development project. (Id., PAGEID # 30.) The Proposal then becomes specific to the

Salata engagement, outlining its scope:

[Salata] has engaged Chepri to build out their website . . . and integrate

them with Olo’s API for online ordering, DineEngineCMS and

Paytronix/Punchh loyalty/rewards processing. Chepri will take

[Salata’s] artwork, direction and apply it to our user experience (UX)

design and front-end framework. The goal is to enhance the customer

ordering experience, increase online ordering by keeping the online

ordering experience under the [Salata] domain, improved ordering flow,

custom up-sells/cross-sells by product and improved awareness of the

[Salata] brand.

Chepri will custom develop the website and Online Ordering System UX

using the Olo API with Agile/Scrum methodologies according to the

client’s goals, and priority of features. At the end of the project, [Salata]

deliverables will include online ordering experience integrated under

the [Salata] domain, integrated with Olo and Paytronix/Punchh

Advanced Loyalty Single Sign On (SSO).

. . .

The scope of work for the web project includes all planning, execution,

implementation, and training for [Salata]. Chepri will be responsible for

the design of the new web service based on content provided by [Salata]

feedback also provided by [Salata]. Each stage of the project will require

approval from [Salata] point of contact before moving on to the next

stage. Chepri will provide resources for designing, building, testing, and

implementing the new [Salata] ordering platform.

(Id., PAGEID # 31.) The Proposal goes on to list project requirements and responses

to questions posed by Salata. (Id., PAGEID # 32–40.) Finally, the Proposal

estimates a project timeline and associated costs. (Id., PAGEID # 42–47.)

Attached to the Proposal is a document titled Terms of Service (“TOS”). (Id.,

PAGEID # 49–51.) Section 1. of the TOS provides:

Subject to the terms and conditions set forth herein, Chepri, LLC aka

DineEngine, an Ohio Limited Liability Company (“Chepri”) agrees to

provide the services as contained and outlined in the associated project

breakdown above to the client. By both approving this document and

providing an electronic signature, Client or Salata Holdings, LLC (1)

agrees to pay the amount(s) set forth in the Payment Terms above, 2)

confirms the accuracy of the Associated Project Costs, and 3) agrees to

the following terms.

(Id., PAGEID # 49.) Ten standard contracting provisions follow, including with

respect to payment, termination, intellectual property rights, the parties’

representations and warranties, etc. (Id.) The TOS bears the signature of a Salata

representative, dated November 5, 2018. (Id., PAGEID # 50.)

The Proposal also makes reference to a Master Service Agreement (“MSA”),

under which Chepri would provide Salata with continuing service and support in

exchange for a monthly retainer. (See, e.g., id., PAGEID # 34.) In the Proposal,

Chepri “suggest[s] an annual [MSA] with a minimum allocation of 16 to 24 hours

per month,” and later provides a link to a standard MSA. (Id., PAGEID # 34, 48. See

also Compl. Ex. B, ECF No. 1-2.)

B. Development

After the engagement was finalized, the parties began work developing

Salata’s re-designed DEP. In mid-February 2019, Salata provided digital artwork to

Chepri for use on the platform. (Compl., ¶ 34.) By early April, Salata became

concerned that Chepri’s work had been delayed, and so engaged third-party

consultant ExOpSol to help “shepherd” the project through to completion. (Id.,

¶ 28.) A series of botched encounters followed:

• On April 10, a Chepri representative told Salata that the project would be

completed in early May with Olo certification by May 10. (Id., ¶ 30.) On a

call the next day, an Olo representative informed Salata that certification

would take three to six weeks. (Id., ¶ 31.)

• On April 11, Salata learned that Chepri was unaware that it had access to

Olo’s “Sandbox” development environment, and that Chepri had not yet

initiated conversations with Paytronix about integration. (Id., ¶¶ 31–32.)

• On April 19, Chepri and Salata had a call to discuss Chepri’s failure to

meet the UX design deadline. (Id., ¶ 34.) The delay was allegedly caused

by Chepri’s failure to upload the digital artwork that Salata provided

months earlier. (Id.)

• On April 30, Olo confirmed that Chepri had accessed Olo’s Sandbox

development environment. (Id., ¶ 35.)

• On May 3, Chepri represented that its development work was 55–75%

complete. (Id., ¶ 36.)

• On May 9, Chepri began discussing integration with Paytronix. (Id., ¶ 37.)

C. Site Launch

In late-July, the parties decided to work towards a “rolling” launch of the

platform. (Id., ¶ 41.) During a roll-out for select locations the following week,

however, it was discovered that group ordering was unavailable. (Id., ¶ 42.) Chepri

then advised that group ordering would be unavailable until all locations had

launched. (Id.)

The re-designed website and online ordering system launched in full on

September 19, 2019. (Id., ¶ 44.) “Immediately upon launch, the online ordering site

crashed for approximately one-half hour . . . , during which time no customers could

access the site.” (Id.) Group ordering was still unavailable, and the website did not

allow customers to split payments or save payment options, despite those features

being identified as requirements. (Id., ¶¶ 42, 45.) Over the next month, the site

crashed six more times. (Id., ¶¶ 46–57.) Salata further alleges that, even when the

site was working, the system had significant flaws in its functionality. (Id., ¶ 58.)

D. Post-Launch Support

After the September 19 launch, Salata submitted various support requests to

Chepri. Salata alleges that Chepri “de-prioritiz[ed]” its support requests to pressure

Salata into signing an MSA. (Id., ¶ 59.) For example, in a “support ticket” dated

October 22, 2019, Salata inquired about noticeable differences between Salata’s site

performance and that of other Chepri customers. (Id., ¶ 60.) Chepri’s CEO

responded, in part, as follows:

There are many reasons why there would be differences in performance,

but most of our customers are in on-going agreements where we

continue to improve all aspects of their product . . . . We can certainly

prioritize performance, among other additional features during a future

engagement.

(Id., ¶ 61.) In another instance around the same time, Chepri simply “refused to

respond” to a series of support requests. (Id., ¶ 63.)

II. PROCEDURAL BACKGROUND

Salata initiated this action on September 1, 2020. (ECF No. 1.) Its Complaint

asserts claims for breach of contract and the implied duty of good faith and fair

dealing (Count I), fraudulent misrepresentation (Count II), negligent

misrepresentation (Count III), and, in the alternative, unjust enrichment (Count

IV). (Compl., 19–22.) Chepri now moves to dismiss the Complaint under Federal

Rules of Civil Procedure 12(b)(1) and 12(b)(6). (Mot. to Dismiss.) Specifically, Chepri

argues that the Complaint fails to allege that diversity jurisdiction exists, and fails

to state a claim for relief on each of the four counts. The Court will address each

argument, in turn.

III. SUBJECT-MATTER JURISDICTION

Chepri first argues that this Court lacks subject-matter jurisdiction. (See

Mot. to Dismiss, 8.) “In a diversity action, the plaintiff must state all parties’

citizenships such that the existence of complete diversity can be confirmed.” Vaughn

v. Holiday Inn Cleveland Coliseum, 56 F. App’x 249, 250 (6th Cir. 2003) (internal

quotation and citation omitted). A limited liability company has the citizenship of

each of its members. Delay v. Rosenthal Collins Grp., LLC, 585 F.3d 1003, 1005 (6th

Cir. 2009).

Salata alleges that its action is properly before the Court on diversity. (See

Compl., ¶ 4.1) However, Salata’s Complaint did not include sufficient information to

determine whether complete diversity exists among the parties. As a result, the

Court ordered Salata to file a notice supplementing its jurisdictional allegations.

(ECF No. 18.) In response, Salata provided sufficient information for the Court to

establish complete diversity of citizenship. (ECF No. 19.) The Court is satisfied that

diversity jurisdiction exists. Accordingly, Chepri’s motion to dismiss under Rule

12(b)(1) is DENIED.

IV. STANDARD OF REVIEW

Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim

with sufficient specificity to “give the defendant fair notice of what the . . . claim is

and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555

(2007) (internal quotations omitted). A complaint which falls short of the Rule 8(a)

standard may be dismissed if it fails to state a claim upon which relief can be

granted. Fed. R. Civ. P. 12(b)(6).

To survive a motion to dismiss, a complaint must contain sufficient

factual matter, accepted as true, to state a claim to relief that is

plausible on its face. A claim has facial plausibility when the plaintiff

pleads factual content that allows the court to draw the reasonable

inference that the defendant is liable for the misconduct alleged. The

plausibility standard is not akin to a probability requirement, but it asks

for more than a sheer possibility that a defendant has acted unlawfully.

Where a complaint pleads facts that are merely consistent with a

defendant’s liability, it stops short of the line between possibility and

plausibility of entitlement to relief.

1 Although Paragraph 4 of the Complaint incorrectly references 28 U.S.C.

§ 1331 (federal question jurisdiction) instead of § 1332 (diversity jurisdiction), the

error was clearly clerical.

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations and quotations

omitted). The complaint need not contain detailed factual allegations, but it must

include more than labels, conclusions, and formulaic recitations of the elements of a

cause of action. Directv, Inc. v. Treesh, 487 F.3d 471, 476 (6th Cir. 2007).

“Threadbare recitals of the elements of a cause of action, supported by mere

conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678 (citing Twombly, 550

U.S. at 555).

V. ANALYSIS

Chepri argues that Salata has failed to state a claim upon which relief may

be granted. As more fully discussed below, Salata has plausibly stated a claim for

breach of contract and fraudulent misrepresentation. However, the Complaint fails

to state a claim for negligent misrepresentation. Finally, the existence of a valid

contract between the parties bars Salata’s unjust enrichment claim.

A. The Complaint sufficiently pleads a claim for breach of

contract and of the duty of good faith and fair dealing.

In its first claim, Salata alleges that Chepri’s conduct amounted to a breach

of contract. To establish a breach of contract claim under Ohio law, a plaintiff must

plead facts establishing: (1) the existence of a contract, (2) performance by the

plaintiff, (3) breach by the defendant, and (4) damage or loss to the plaintiff.

Backus v. Bank of Am., N.A., 896 F. Supp. 2d 686, 693 (S.D. Ohio 2012) (Frost, J.)

(quoting Doner v. Snapp, 649 N.E.2d 42, 44 (Ohio Ct. App. 1994)). Salata asserts

that Chepri breached the agreement between the parties (the “Agreement”) by

failing to provide a working DEP and by failing to provide 90 days of complimentary

post-launch support. (Compl., ¶¶ 86–87.) Chepri argues that Salata’s Complaint

fails to plausibly allege a breach of the contract terms and actionable damages.

(Mot. to Dismiss, 9.)

The first element of a breach of contract claim is the existence of a contract.

Although the parties disagree as to the scope of the Agreement, it is clear that a

contract exists. The first element is therefore satisfied.

The second element—performance by the plaintiff—is also easily satisfied.

Salata alleges that it paid Chepri $180,794.15 and participated in development of

the DEP, including by providing artwork and other digital assets. (Compl., ¶¶ 23,

85.)

The third element—breach by defendant—requires additional analysis.

Salata alleges that Chepri breached the Agreement by failing to provide a working

DEP and failing to provide 90 days of complimentary post-launch support. (Compl.,

¶¶ 86–87.) To determine whether this conduct constitutes a breach, the Court must

first determine whether the terms of the Agreement impose upon Chepri the

obligation to provide a working DEP and 90 days of complimentary post-launch

support.

As noted above, the parties disagree about which terms comprise the

Agreement. There is no dispute that the TOS constitutes a portion of the

Agreement. The parties disagree about the extent to which the Proposal also forms

a part of the Agreement. Under Ohio law, material can be incorporated by reference

into a contract if that contract “explicitly, or at least precisely, identif[ies] the

written material being incorporated and . . . clearly communicate[s] that the

purpose of the reference is to incorporate the referenced material into the contract.”

Ewalt v. Gatehouse Media Ohio Holdings II, Inc., No 2:19-cv-4262, 2021 WL 825978,

at *11 (S.D. Ohio Mar. 4, 2021) (Marbley, J.) (quoting Volovetz v. Tremco Barrier

Sols., 74 N.E.3d 743, 751–52 (Ohio Ct. App. 2016)) (original alteration omitted).

The TOS provides, in relevant part, as follows:

[Chepri] agrees to provide the services as contained and outlined in the

associated project breakdown above to [Salata]. By both approving

this document and providing an electronic signature, [Salata] (1) agrees

to pay the amount(s) set forth in the Payment Terms above, 2)

confirms the accuracy of the Associated Project Costs, and 3) agrees

to the [terms contains in the Terms of Service].

. . .

Chepri warrants that the Work Product will conform to the

specifications set forth in the Product Description. Chepri does not

warrant that the operation or use of the Work Product will be

uninterrupted or error-free. CHEPRI EXCLUDES ALL OTHER

WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING

THE IMPLIED WARRANTIES OF MERCHANTABILITY AND

FITNESS FOR A PARTICULAR PURPOSE.

[Salata] understands and acknowledges that Chepri uses Agile

methodologies for projects, and therefore costs associated with sprints

or iterations are based on an hourly rate of $139.99. A sprint can last up

to 4 weeks and therefore the amounts listed in the Product Details are

only a quote based on an estimate of the amount of time multiplied in

hours by the hourly rate to determine what a working product will take

to design, develop and deliver. Any remaining functionality, road-

mapped, or backlogged items not included in such sprint would then be

rolled over to future versions, including bugs, features, new

functionality, changes and/or updates. Features are prioritized based on

client requirements, with the highest prioritized items being planned,

designed and developed first. CHEPRI DOES NOT GUARANTEE A

WORKING PRODUCT EVEN AFTER A SPRINT IS COMPLETED.

CHEPRI CAN ONLY PROVIDE ESTIMATED HOURS AND

DELIVERY DATES BASED ON CLIENT’S REQUIREMENTS, WHICH

ARE SUBJECT TO CHANGE. CHEPRI DOES NOT GUARANTEE

ANY DATE OR TIME OF DELIVERY.

(Compl. Ex. A., PAGEID # 49–50) (capitalization in original) (emphasis added). This

language is important for two reasons: First, it supports Salata’s proposition that

the Proposal is incorporated into and comprises a part of the Agreement. The TOS

does not define “associated project breakdown,” “Payment Terms,” “Associated

Project Costs,” “Product Description,” or “Product Details.” Although these terms do

not precisely align with terms defined or used in the Proposal, it is clear from the

context that they intend to reference the Proposal’s content. Making all reasonable

inferences in favor of the plaintiff, as it must, the Court will assume that the

Proposal was incorporated in its entirety into the TOS and constitutes a portion of

the Agreement.2

Second, the quoted language seems to support Chepri’s position that it was

not contractually obligated to deliver a working, error-free, or uninterrupted DEP.

However, Salata alleges that Chepri failed to provide a functional final product at

all. (Compl., ¶ 43.) The notion that Chepri was not obligated to do so defies common

sense and is inconsistent with other portions of the Proposal which form a part of

the Agreement. For example, the Proposal states that Salata “has engaged Chepri

to build out their website . . . and integrate them with Olo’s API for online ordering,

2 It is not reasonable to infer that the MSA comprises a part of the

Agreement. Salata alleges only that it “accessed” the “standard Master Services

Agreement” linked in the Proposal. The terms of that standard MSA make clear

that it was not a part of the original Agreement between the parties, and required

additional action in order to take effect. (See Compl. Ex. B., ECF No. 1-2, PAGEID #

59 (“This is an ancillary agreement for additional scope items falling outside of the

original proposed scope and for on-going work.”).)

DineEngineCMS and Paytronix/Punchh loyalty/rewards processing.” (Compl. Ex. A.,

PAGEID # 31.) It further defines the scope of work to “include[] all planning,

execution, implementation, and training” for the DEP, based on feedback and

approval from Salata. (Id.) Salata has plausibly alleged that Chepri breached these

provisions of the Agreement by failing to provide a working DEP after project-

completion.

Salata also alleges that Chepri breached the Agreement by failing to provide

90 days of complimentary post-launch support. Salata further alleges that Chepri

breached the “implied covenant of good faith and fair dealing” when it subordinated

Salata support tasks because Salata did not enter into an MSA with Chepri. Under

Ohio law, “[t]he parties to a contract are required to use good faith to fill the gap of

a silent contract.” Burlington Res. Oil & Gas Co. v. Cox, 729 N.E.2d 398, 547 (Ohio

Ct. App. 1999). “‘Good faith’ is a compact reference to an implied undertaking not to

take opportunistic advantage in a way that could not have been contemplated at the

time of drafting, and which therefore was not resolved explicitly by the parties.” Ed

Schory & Sons, Inc. v. Soc’y Nat’l Bank, 662 N.E.2d 1074, 1082–83 (Ohio 1996)

(quotation omitted). “What the duty of good faith consists of depends upon the

language of the contract in each case which leads to an evaluation of reasonable

expectations of the parties.” Savedoff v. Access Grp., Inc., 524 F.3d 754, 764 (6th Cir.

2008).

In the Proposal, which constitutes a part of Agreement, Chepri stated: “We

will provide 90 days complimentary support post-launch for any bugs/issues related

to the finished product.” (Compl. Ex. A, PAGEID # 34.) The Agreement is silent as

to how or at what level the complimentary support would be provided. The

Complaint indicates that Chepri indeed provided some support post-launch (see,

e.g., Compl., ¶¶ 47–48)—but alleges that Chepri withheld post-launch support at

key points to pressure Salata into executing an MSA. Based on these allegations, it

would not be unreasonable for a fact-finder to conclude that Chepri contravened the

purpose underlying the post-launch support provision of the Agreement and took

opportunistic advantage of its silence by trying to leverage the complimentary

support into an ongoing services agreement. See Huntington Nat’l Bank v. Deluxe

Fin. Servs., Inc., No. 2:14-cv-250, 2014 WL 4987597, at *4 (S.D. Ohio Oct. 6, 2014)

(Smith, J.) (clarifying that the court cannot “conclusively resolv[e]” the issue of good

faith on a motion to dismiss, but must look instead to whether the allegations can

reasonably be found by a trier of fact to constitute a breach). Salata has plausibly

alleged the third element of a breach of contract claim with respect to post-launch

support services.

Finally, as to the fourth element—damage or loss to plaintiff—Chepri argues

that the only damages plausibly alleged in the Complaint were expressly waived by

Salata. (Mot. to Dismiss, 14.) Salata alleges that it suffered at least $280,431.85 in

damages, including the $180,794.15 that Salata paid to Chepri, plus alleged

reputational harm and expenses incurred as the result of crashes, downtime, and

the ExOpSol engagement. (See id., ¶¶ 72–75, 88.) The Agreement expressly limits

Chepri’s liability to exclude lost profits, special damages, or consequential damages.

(Compl. Ex. A, PAGEID # 50.) General damages are measured by “the loss in the

value to [the injured party] of the other party’s performance caused by its failure or

deficiency,” while consequential damages arise from “any other loss . . . caused by

the breach.” See Restatement (Second) of Contracts § 347 (Am. Law Inst. 1981).

Under Ohio law, a contractual waiver of consequential damages may be upheld

“where there is no great disparity of bargaining power between the parties . . . .”

Zaremba v. Marvin Lumber and Cedar Co., 458 F. Supp. 2d 545, 549 (N.D. Ohio

2006) (quoting Chemtrol Adhesives, Inc. v. Am. Mfrs. Mut. Ins. Co., 537 N.E.2d 624,

639 (Ohio 1989)). No such disparity is alleged or apparent here. Although certain

components of the claimed damages will be barred by the terms of the Agreement,

the Court finds that the Complaint plausibly alleges that Salata suffered harm in

the form of general damages due to Chepri’s alleged breach.

Chepri’s motion to dismiss Count I of the Complaint is DENIED.

B. The Complaint sufficiently pleads a claim for fraudulent

misrepresentation.

In Count II of its Complaint, Salata alleges that Chepri fraudulently inflated

its experience developing online ordering systems like the one Salata engaged it to

produce. (Compl., ¶¶ 90–92.) To state a claim of fraudulent misrepresentation under

Ohio law, a plaintiff must show

(a) a representation . . . , (b) which is material to the transaction at hand,

(c) made falsely, with knowledge of its falsity, or with such utter

disregard and recklessness as to whether it is true or false that

knowledge may be inferred, (d) with the intent of misleading another

into relying upon it, (e) justifiable reliance upon the representation. . .,

and (f) a resulting injury proximately caused by the reliance.

Andersons, Inc. v. Consol, Inc., 348 F.3d 496, 505 (6th Cir. 2003) (citation omitted).

The claim commonly involves “some collateral misrepresentation designed to induce

the plaintiff into the contract.” Aero Fulfillment Servs. Corp v. Oracle Corp., 186 F.

Supp. 3d 764, 775 (S.D. Ohio 2016) (Black, J.). A plaintiff who brings a fraud claim

must plead “with particularity the circumstances constituting the fraud . . . .” Fed.

R. Civ. P. 9(b). To satisfy this heightened pleading standard, a plaintiff must “allege

the time, place, and content of the alleged misrepresentations on which he or she

relied; the fraudulent scheme; the fraudulent intent of the defendants; and the

injury resulting from the fraud.” Aero Fulfillment, 186 F. Supp. 3d at 776 (quoting

U.S. ex rel. Marlar v. BWXT Y-12 LLC, 525 F.3d 439, 444 (6th Cir. 2008)). In other

words, the plaintiff must plead sufficient detail “to allow the defendant to prepare a

responsive pleading.” Id. (quoting MyVitaNet.com v. Kowalski, No. 2:08-cv-48, 2008

WL 2977889, at *5 (S.D. Ohio July 29, 2008) (Frost, J.)).

Salata alleges, “[u]pon information and belief,” that Chepri misrepresented

“its experience and expertise in successfully developing online ordering systems for

restaurants, and with Olo and Paytronix integration[.]” (Compl., ¶ 65–71.) In

Salata’s view, its experience with Chepri casts doubt on the veracity of several

representations made throughout the Agreement. For example, Chepri represented

in the Proposal that it “ha[d] over 5 years of UX development for OLO customers,

and [was] an OLO UX Partner.” (Id., ¶ 70.) But, in an April 2019 development call

with representatives of Salata, Olo, and Chepri, the Chepri developer was unaware

that he even had access to Olo’s development environment. (Id., ¶ 31.) As Chepri

rightly points out, a fraud claim pled on information and belief is permissible only if

the pleading “set[s] forth a factual basis for such relief” that goes beyond

“speculation and unsupported conclusion[s.]” Sanderson v. HCA-The Healthcare Co.,

447 F.3d 873, 878 (6th Cir. 2006) (citation omitted). Although the facts distilled

through discovery may not support an ultimate finding of fraud, Salata’s Complaint

pleads the claim with sufficient particularity.

Chepri’s motion to dismiss based on failure to state a fraudulent

misrepresentation claim is DENIED.

C. The Complaint fails to plead a claim for negligent

misrepresentation.

Salata also alleges that those representations give rise to a claim of negligent

misrepresentation. (Compl., ¶¶ 96–102.) The Ohio Supreme Court defines negligent

misrepresentation to be:

One who, in the course of his business, profession or employment, or in

any other transaction in which he has a pecuniary interest, supplies

false information for the guidance of others in their business

transactions, is subject to liability for pecuniary loss caused to them by

their justifiable reliance upon the information, if he fails to exercise

reasonable care or competence in obtaining or communicating the

information.

Delman v. City of Cleveland Heights, 534 N.E.2d 835, 838 (Ohio 1989) (citation

omitted). Chepri argues that the claim must fail, because Chepri and Salata do not

have the “special fiduciary-type relationship” necessary to support a negligent

misrepresentation claim. (Mot. to Dismiss, 18) (citing Austin-Hall v. Woodard, No.

3:18-cv-270, 2020 WL 5943018, at *9 (S.D. Ohio Oct. 7, 2020) (Rice, J.)). The Court

agrees.

The Ohio Supreme Court first recognized the claim of negligent

misrepresentation in Haddon View Inv. Co. v. Coopers & Lybrand, 436 N.E.2d 212

(Ohio 1982). The Haddon View Court held that accountants could be liable to a

third-party (i.e., not the accountant’s client) for negligence where the third-party “is

a member of a limited class whose reliance on the accountant’s representations is

specifically foreseen.” Id. at 215. The Court applied the Restatements (Second) of

Torts § 552 to impose a duty upon the accountants as to the limited partners of a

partnership for which the accountants provided professional services. Id. at 214, n.

1. That section provides, in relevant part, as follows:

(1) One who, in the course of his business . . . or in any other transaction

in which he has a pecuniary interest, supplies false information for the

guidance of others in their business transactions, is subject to liability

for pecuniary loss caused to them by their justifiable reliance upon the

information, if he fails to exercise reasonable care or competence in

obtaining or communicating the information.

(2) . . . the liability stated in Subsection (1) is limited to loss suffered

(a) by the person or one of a limited group of persons for whose

benefit and guidance he intends to supply the information or

knows that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends the

information to influence or knows that the recipient so intends or

in a substantially similar transaction. . . .

The Ohio Supreme Court reiterated its adoption of the Restatement

definition of negligent misrepresentation in Gutter v. Dow Jones, Inc., 490 N.E.2d

898, 900 (Ohio 1986). The Gutter Court focused on the claim’s limits, holding that a

newspaper was not liable to its general readership for negligence in publishing

incorrect information because the reader “does not fall within a special limited class

(or group) of foreseeable persons” as set forth in § 552(2)(a). The Court contrasted

the universe of Wall Street Journal readers with the narrow class of “identifiable

and foreseeable group of limited partners” whose claim was permitted to proceed in

Haddon View. The Court later described this limitation as a “nexus . . . that can

serve as a substitute for contractual privity.” Floor Craft Floor Covering, Inc. v.

Parma Cmty. Gen. Hosp. Ass’n, 560 N.E.2d 206, 211 (Ohio 1990) (citation omitted).

Twenty years after Gutter, the Ohio Supreme Court discussed its holding in

Haddon View, and indicated that the negligent misrepresentation claim was limited

to circumstances of professional negligence:

In Haddon View, this court discussed the liability of an accountant for

professional negligence in accord with 3 Restatement of the Law 2d,

Torts (1979), Section 552. That section recognizes professional liability,

and thus a duty in tort, only in those limited circumstances in which a

person, in the course of business, negligently supplies false information,

knowing that the recipient either intends to rely on it in business, or

knowing that the recipient intends to pass the information on to a

foreseen third party or limited class of third persons who intend to rely

on it in business. Liability in Haddon View was based exclusively upon

this discrete, preexisting duty in tort and not upon any terms of a

contract or rights accompanying privity.

Corporex Dev. & Constr. Mgmt., Inc. v. Shook, Inc., 835 N.E.2d 701, 704–05 (Ohio

2005) (internal citations omitted).

The Corporex Court may be said to recognize that a negligent

misrepresentation claim cannot sustain without first identifying a duty owed—and

that professionals owe such a duty to those who may reasonably and foreseeably

rely on their work product. Cf. Floor Craft, 560 N.E.2d at 213–14 (Brown, J.,

dissenting) (limiting Haddon View to professional malpractice causing economic loss

to a foreseeable plaintiff). In this view, although situated in a larger discussion of

the “economic loss rule,”3 the Corporex clarification of the Haddon View holding

broadly establishes the “duty” necessary to bring a successful claim sounding in

negligence.

Both before and after Corporex, federal courts have split on whether Ohio law

requires a special relationship to sustain a claim for negligent misrepresentation.

For example, in Nat’l Mulch and Seed, Inc. v. Rexius Forest By-Products Inc., No.

2:02-cv-1288, 2007 WL 894833 (S.D. Ohio Mar. 22, 2007) (Holschuh, J.), the plaintiff

alleged that the defendant negligently misrepresented the capabilities of mulch

blower trucks that it sold to plaintiff. Defendant moved for summary judgment on

the claim, arguing both that it was barred by the economic loss rule and that

plaintiff failed to establish the “special relationship” required to sustain a negligent

misrepresentation claim. Judge Holschuh discussed Corporex in analyzing the

economic loss rule argument. See Id. at *7. But he did not discuss Corporex in his

discussion the special relationship argument, deciding instead:

[A] special relationship is not a formal element of a negligent

misrepresentation claim under Ohio law. Instead . . . , in order to assert

a negligent misrepresentation claim under Ohio law, a plaintiff must

establish that the defendant supplied false information for the guidance

of the plaintiff in its business transactions, that the plaintiff was

justified in relying on the information, and that the defendant failed to

exercise reasonable care or competence in obtaining and/or

communicating the information. Delman, 41 Ohio St.3d at 4.

To the extent Ohio courts discuss a special relationship in connection

with a negligent misrepresentation claim, the discussion appears to be

related to the requirement that a defendant supply false information for

3 “The economic-loss rule generally prevents recovery in tort of damages for

purely economic loss.” Corporex, 835 N.E.2d at 704 (citations omitted). The Haddon

View Court recognized an exception to the economic loss rule where the loss was

caused by a party owing a duty in tort to the aggrieved party. See id. at 704–05.

the guidance of the plaintiff in its business transactions. The “for the

guidance of” language directs the court’s attention to the duty owed and

serves to limit the class of potential plaintiffs. As explained by the

Supreme Court of Ohio, liability for negligent misrepresentation is

limited to “the person or one of a limited group of persons for whose

benefit and guidance [the defendant] intends to supply the information

or knows that the recipient intends to supply it.” Gutter v. Dow Jones,

Inc., 22 Ohio St.3d 286, 288 (1986); accord Haddon View, 70 Ohio St.2d

at 157 (not requiring any special relationship but limiting liability to

misrepresentations made to a foreseeable class of persons). “A contrary

result would in effect extend liability to all the world and not a limited

class . . . .” Gutter, 22 Ohio St.3d at 289.

Id. at *9 (internal footnote omitted). Following this analysis, which looks at the size

of the audience to whom the representations were made instead of the nature of the

parties’ relationship, Judge Holschuh denied summary judgment and allowed the

negligent misrepresentation claim to proceed.

In contrast, the Northern District of Ohio concluded that “a claim for the tort

of negligent misrepresentation arises from a contract between two sophisticated

parties acting at arm’s length.” Picker Int’l, Inc. v. Mayo Found., 6 F. Supp. 2d 685,

686 (N.D. Ohio 1998). Judge Gwin explained the law as he understood it:

A core requirement [to maintain a negligent misrepresentation claim] is

a special relationship under which the defendant supplied information

to the plaintiff for the latter’s guidance in its business transactions. This

relationship occurs only in “special” circumstances. Usually the

defendant is a professional (e.g., an accountant) who is in the business

of rendering opinions to others for their use in guiding their business,

and the plaintiff is a member of a limited class. Haddon View Inv. Co. v.

Coopers & Lybrand, 70 Ohio St.2d 154, 157, 436 N.E.2d 212 (1982);

Gutter v. Dow Jones, Inc., 22 Ohio St.3d 286, 288–89, 490 N.E.2d 898

(1986). This “special” relationship does not exist in ordinary business

transactions. Id.

Id. at 689. As recently as last year, this Court also concluded that a special

relationship is necessary to maintain a negligent misrepresentation claim. Austin-

Hall, 2020 WL 5943018, at *9.

Since Picker and National Mulch, courts have had ample occasion to consider

whether a special relationship—one beyond that found in a typical business

transaction—is necessary to maintain a claim for negligent misrepresentation.

Unfortunately, the resulting body of case law is starkly divided between those that

answer “no, a special relationship is not required”—see, e.g., Pacifica Loan Five,

LLC v. Fifth Third Bank, 1:09-cv-930, 2011 WL 13228111, at *10–11 (S.D. Ohio

Apr. 14, 2011) (Barrett, J.) (following Nat’l Mulch, declaring Picker and its progeny

as “flatly incorrect”); Hodell-Natco Indus., Inc. v. SAP Am., Inc., 13 F. Supp. 3d 786,

797 (N.D. Ohio 2014) (following Nat’l Mulch); Crooksville Family Clinic, Inc. v.

Quest Diagnostics, Inc., 2:16-cv-1145, 2019 WL 6715941, at *11–12 (S.D. Ohio Dec.

10, 2019) (Morrison, J.) (same)—and those that answer “yes, a special relationship

is required”—see, e.g., Ziegler v. Findlay Indus., Inc., 464 F. Supp. 2d 733, 738 (N.D.

Ohio 2006) (following Picker); Doe v. SexSearch.com, 551 F.3d 412, 418 (6th Cir.

2008) (noting that courts require “a special relationship under which the defendant

supplied information to the plaintiff for the latter’s use in its business transaction”)

(citation omitted); Ohio Police & Fire Pension Fund v. Standard & Poor’s Fin. Servs.

LLC, 700 F.3d 829, 840–41 (6th Cir. 2012) (citing Picker to note that Ohio courts

extend liability for negligent misrepresentation when a “third part[y] closely linked

to a person in privity with the defendant could reasonably be expected to rely on

information the defendant provide to that person”); Austin-Hall, 2020 WL 5943018,

at *9 (“a claim of negligent misrepresentation arises only in the context of a special,

fiduciary-type relationship between the parties”); Li-Conrad v. Curran, 50 N.E.3d

573, 578 (Ohio Ct. App. 2016) (negligent misrepresentation “is considered a

business tort that is not meant to have extensive application” and is limited to

“‘fiduciary-like’ relationship[s]”). The Court cannot discern so much as a thread of

through-line connecting the divergent law.

Despite the apparent split on the topic, the Court is persuaded that, under

Ohio law, the tort of negligent misrepresentation is not intended to provide relief in

a case such as this one. Foremost, Salata and Chepri are in privity of contract with

one another; the contract accordingly provides Salata with a basis for relief. See

Corporex, 835 N.E.2d at 704–05 (“When a duty in tort exists, a party may recover in

tort. When a duty is premised entirely upon the terms of a contract, a party may

recover based upon breach of contract.”); Floor Craft, 560 N.E.2d at 211 (Ohio 1990).

Further, if a special relationship is indeed required, it is not present. Chepri is not

alleged to be in the business of providing guidance to others in such a way that it

would owe Salata any special duty. See Ohio Police & Fire Pension Fund, 700 F.3d

at 840–41 (citing Haddon View and Picker to support the proposition that the

defendant in a negligent misrepresentation claim is typically a professional “who is

in the business of rendering opinions to others for their use in guiding their

business”); Levy v. Seiber, 57 N.E.3d 331, 340 (Ohio Ct. App. 2016) (negligent

misrepresentation requires that a “defendant [] is in the business of supplying

information” and a “plaintiff seek guidance with respect to [a] business transaction,

such as when there is a special relationship between the parties”).

Chepri’s motion to dismiss the negligent misrepresentation claim is

GRANTED.

D. Salata’s unjust enrichment claim cannot proceed.

Fourth, and in the alternative, Salata alleges that Chepri was unjustly

enriched in the amount of $180,794.15 (the amount Salata paid to Chepri). (Compl.,

¶¶ 104, 107.) To establish a claim of unjust enrichment, a plaintiff must allege

(1) a benefit conferred by a plaintiff upon a defendant; (2) knowledge by

the defendant of the benefit; and (3) retention of the benefit by the

defendant under circumstances where it would be unjust to do so

without payment.

Foster v. Health Recovery Servs., Inc., 2:19-cv-4453, 2020 WL 5943021, at *12 (S.D.

Ohio Oct. 7, 2020) (Marbley, J.) (quoting Dailey v. Craigmyle & Son Farms, L.L.C.,

894 N.E.2d 1301, 1309 (Ohio Ct. App. 2008)). However, “[w]here the parties have an

enforceable contract and merely dispute its terms, scope, or effect, one party cannot

recover for . . . unjust enrichment.” Terry Barr Sales Agency, Inc. v. All-Lock Co.,

Inc., 96 F.3d 174, 181 (6th Cir. 1996). That is precisely the scenario here. Chepri’s

motion to dismiss based on failure to state an unjust enrichment claim is

GRANTED.

VI. CONCLUSION

For the reasons stated herein, the Court GRANTS IN PART and DENIES

IN PART Chepri’s Motion to Dismiss. Counts III and IV of Salata’s Complaint are

hereby DISMISSED.

IT IS SO ORDERED.

/s/ Sarah D. Morrison

SARAH D. MORRISON

UNITED STATES DISTRICT JUDGE