Industrial Testing Laboratories, Inc. v. Thermal Science, Inc.

GRIMM, Presiding Judge. The trial court granted defendant’s motion to dismiss plaintiffs petition for failure to state a cause of action. Plaintiff appeals, raising one point. Plaintiff alleges that the trial court erred in dismissing its fraud claim. Plaintiff contends it adequately pled that defendant’s false and fraudulent representations, and plaintiff’s reliance thereon, were the direct and proximate cause of plaintiff (1) being charged with a federal crime, (2) being assessed a fine, and (3) losing its reputation and clients. We reverse and remand. I. Background We set forth the facts as alleged in the petition. For forty-eight years, plaintiff has engaged in the business of testing all types of materials, products and premises. It enjoyed a reputation as a highly qualified, impartial, and reliable laboratory. Defendant manufactures a product called “Thermo-Lag.” It markets the product as a fire resisting insulating material, used extensively in nuclear power plants. The parties had a business relationship which existed for many years. A high degree of mutual trust and confidence existed between them. From 1981 through 1990, defendant hired plaintiff to participate in testing Thermo-Lag to enable defendant to sell it to various nuclear plants. The petition continues, alleging that defendant falsely and fraudulently represented to plaintiff that plaintiff’s only role in the testing “was to witness the test and have an observer present at the time of testing to confirm the temperatures achieved and other relevant figures involved in each test.” Further, defendant represented that the report of each test accurately reflected the occurrences and results of the test, “and that cover sheets to be signed by Plaintiff indicating approval would only be attached to such accurate reports.” Plaintiff relied on these representations. It signed a number of cover sheets supplied by defendant, which were supposed to be attached to each test report. The falsity of the representations included the fact that the true role required of plaintiff, “as the independent testing entity, was to witness and supervise the preparation of the test samples, and the build-up of the test articles, in addition to observing the test itself and recording the statistics.” Defendant prepared reports, and attached cover sheets signed by plaintiff, which contained extensive false and inaccurate statements regarding plaintiffs role in the test. Plaintiff did not learn of these false representations until May 1993, when the United States Nuclear Regulatory Commission conducted an investigation. “As a direct and proximate consequence [of] the Defendant’s false and fraudulent representations and Plaintiff’s reliance thereon, Plaintiff sustained serious and substantial damage: Plaintiff was charged with the federal crime of aiding and abetting the submission of a false report under the Nuclear Regulatory Act, and assessed a fine of $150,-000; substantial exposure in the media brought this matter to the attention of Plain [146] tiff’s clients throughout the country, and Plaintiffs reputation therefore became severely tarnished and Plaintiff was caused to lose clients whom it had represented for many years.” Defendant filed a motion to dismiss for failure to state a claim upon which relief can be granted. It alleged that the petition “fails to allege proximate cause and injury.” The trial court granted the motion. In its order, it said: Plaintiff here has not alleged a proximately caused injury. Plaintiff has alleged it pleaded guilty and was assessed a fine in the amount of $150,000. The fine imposed on plaintiff was a criminal sanction based on its admission of wrongdoing; it was not a compensatory judgment in a civil case for which plaintiff might have a claim for indemnity or contribution. The proximate cause of plaintiffs criminal sentence was plaintiffs guilty plea and criminal conviction, which was necessarily based on plaintiffs conduct. Plaintiff therefore cannot establish a causal connection between any action of defendant and this criminal sentence which would entitle plaintiff to recoup this amount from defendant. Plaintiff also alleges the entire fraudulent scheme was exposed when plaintiffs employees testified before a federal grand jury, and national exposure in the media brought the matter to the attention of plaintiffs clients. Plaintiff has not alleged that defendant made false statements to plaintiffs clients, that the reporting in the media was false and defendant was responsible for any such falsity, or otherwise alleged any causal connection between the representations made by defendant to plaintiff and plaintiffs subsequent injuries. Rather, plaintiff has alleged its injuries resulted from a criminal investigation and plaintiffs subsequent guilty plea and conviction as well as the public disclosure of the same. II. Motion to Dismiss In plaintiffs only point, it alleges that the trial court erred in granting defendant’s motion to dismiss because “plaintiff alleged proximate cause in its petition in that it alleged that as a direct and proximate consequence of defendant’s false and fraudulent representations and plaintiffs reliance thereon plaintiff was charged with the federal crime of aiding and abetting the submission of a false report under the Nuclear Regulatory Act, and assessed a fine of $150,000.” On appeal, our review of a motion to dismiss for failure to state a claim requires that we construe the petition favorably to the plaintiff. We are to give the plaintiff the benefit of every reasonable intendment in view of the facts stated. If the allegations invoke principles of substantive law entitling plaintiff to relief, the petition should not be dismissed. Estate of Saling, 924 S.W.2d 312, 313 (Mo.App.S.D.1996); Hyatt v. Trans World Airlines, Inc., 943 S.W.2d 292, 295 (Mo.App.E.D.1997). At the trial court level, when considering a motion to dismiss for failure to state a cause of action, the trial court can only look to the pleadings. Rule 55.27(a). The rule reads in pertinent part: If, on a motion asserting ... failure of the pleading to state a claim upon which relief can be granted, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment. Nothing in the record indicates that the motion to dismiss was treated as a motion for summary judgment. Before the trial court could consider it as such, the trial court must notify the parties it is so doing. Hanrahan v. Nashua Corp., 752 S.W.2d 878, 881 (Mo.App.E.D.1988). We have previously set forth the relevant portions of plaintiffs petition; its causation allegation and the trial court’s order are verbatim. The trial court, in considering the motion to dismiss, obviously looked at facts outside the petition. As examples, nothing in the petition alleges, as the trial court found, that plaintiff pled guilty to a criminal offense, that the “fine imposed on plaintiff was a criminal sanction based on its admission of wrongdoing,” or that the “proximate cause of plaintiffs criminal sentence was plaintiffs guilty plea and criminal conviction.” Wheth [147] er those facts are true, they cannot be considered on a motion to dismiss because they are outside the petition. Estate of Saling, 924 S.W.2d at 314. Giving the petition its broadest intendment, plaintiff’s causation allegation is sufficient. The trial court erred in granting defendant’s motion to dismiss. Point granted. The trial court’s judgment is reversed. The cause is remanded for further proceedings. PUDLOWSKI, J., concurs and concurs in separate concurring opinion of GARY M. GAERTNER, J. GARY M. GAERTNER, J., concurs in separate concurring opinion.