Karter v. Pleasant View Gardens, Inc.

Citations: 248 F. Supp. 3d 299; 2017 U.S. Dist. LEXIS 50462Docket: CIVIL ACTION NO. 16-11080-RWZ

Court: District Court, D. Massachusetts; March 31, 2017; Federal District Court

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In 2011, Patricia Karter conceived a business idea for locally grown salad greens and engaged Henry Huntington, CEO of Pleasant View Gardens (PVG), to explore this venture. By 2012, they formed a partnership, with Karter identifying Robert LaDue as an additional collaborator. An agreement was reached where Karter would hold an equity stake in the new company. However, before formalizing this, Huntington and LaDue proceeded to register a company without Karter. 

Karter, a Massachusetts resident with a background in various businesses, including co-founding Dancing Deer Baking Company, invested significant resources into developing her business, "LightEffect Farms," which she registered as an LLC in Massachusetts. Karter and Huntington discussed a partnership where LightEffect Farms would cultivate salad greens in greenhouses near PVG's operations. Both parties took steps to advance the venture, with Karter working unpaid and using her funds to support staff and market research, while Huntington provided financial resources for consultants.

As of September 2012, LaDue was introduced to Huntington and began collaborating based on prior agreements. Throughout 2012 and 2013, Karter continued to contribute without pay, with costs shared between her and PVG. By mid-2014, Karter and Huntington reaffirmed their partnership, and Karter submitted a memorandum affirming her equity stake in LightEffect Farms. A consulting agreement was later established in 2014 to provide Karter with modest income, indicating that a more comprehensive Purchase Agreement was to follow. The defendants, including Huntington, PVG, and LaDue, have moved to dismiss Karter's claims in the lawsuit.

Plaintiff was compensated significantly less than her typical consulting fees under the consulting agreement. In January 2015, she, Huntington, and LaDue presented their business venture to PVG’s executives and Huntington's advisors, claiming that their team included all three. In March 2015, Huntington proposed a term sheet granting equity to each partner but allegedly diverged from prior agreements, leading plaintiff to believe Huntington had misled her about his intentions. Despite these concerns, the collaboration continued, and Huntington acknowledged her right to an equity stake. On October 30, 2015, they finalized the venture's terms, with a meeting set for November 6, 2015. However, on November 5, 2015, Huntington and LaDue registered a new corporation, “léf Farms,” with knowledge of plaintiff's previous registration of a similar name.

At the November 6 meeting, Huntington informed plaintiff that he and LaDue would proceed without her, offering no rights or compensation. Efforts by plaintiff to resolve the situation amicably failed, prompting her to file a lawsuit in the Massachusetts Superior Court on May 13, 2016. Defendants removed the case to federal court on June 9, 2016, and moved to dismiss the complaint.

To withstand a motion to dismiss, a complaint must present sufficient factual matter to support a plausible claim for relief. The court must accept the plaintiff's factual allegations as true and draw reasonable inferences in her favor. The defendants argue for the dismissal of all ten counts in the complaint. In Count I, plaintiff alleges violations of Massachusetts General Laws Chapter 93A, which prohibits unfair or deceptive practices in trade. However, she faces the challenge that Chapter 93A protections do not apply to strictly private transactions.

Disputes among partnership members and joint venture parties are classified as non-commercial under Massachusetts General Laws Chapter 93A, which governs unfair business practices. A plaintiff contends that an inquiry into the commercial nature of interactions should allow for Chapter 93A's application, asserting that the interactions involved commercial undertakings and occurred in a business context. However, existing case law dictates that purely private intra-enterprise interactions, such as partnership or joint venture disputes, do not qualify as commercial. The plaintiff also argues that Chapter 93A applies due to allegedly fraudulent negotiations leading to the partnership agreement, referencing case law where similar circumstances allowed for 93A claims. Despite this, the complaint fails to sufficiently allege fraud, leading to the conclusion that Chapter 93A is not applicable. Consequently, the motion to dismiss Count I is granted. 

In Count II, the plaintiff claims a breach of a binding, enforceable partnership contract among herself and the defendants, asserting that an oral agreement on all material terms was reached and that she fulfilled her obligations while the defendants did not. In her opposition to the motion to dismiss, she affirms the existence of a joint venture/partnership agreement without a limited duration.

The breach of contract claim brought by the plaintiff is dismissed based on the premise that, under Massachusetts law, a partner in an at-will partnership has the right to dissolve the partnership without breaching the agreement. The court notes that the plaintiff's allegations do not support her claim that the defendants' dissolution of the partnership constituted a breach. Although the plaintiff asserts entitlement to partnership assets upon dissolution, her complaint fails to specify the assets or interests due to her at that time. The references to anticipated profits and equity stakes lack sufficient detail to establish a claim for breach of contract.

In Count III, the plaintiff claims a breach of the implied covenant of good faith and fair dealing due to the defendants' exclusion of her from a business venture she developed. However, Massachusetts law dictates that such a covenant cannot create new rights outside the existing contract framework. Since the partnership was established as an at-will arrangement, the defendants were entitled to dissolve it without violating any implied obligations. Therefore, this claim is also dismissed. The motions to dismiss both Count II (breach of contract) and Count III (breach of implied covenant) are granted.

Count IV alleges that Huntington and LaDue breached their fiduciary duties to the plaintiff, claiming their actions constituted a usurpation of her corporate opportunities as partners. Under Massachusetts law, partners owe each other a fiduciary duty of utmost good faith and loyalty, requiring them to consider their partners’ welfare and avoid acting for personal gain. However, planning to compete with the partnership does not inherently breach these duties provided no other violations occur. The plaintiff's claim is founded on the defendants pursuing a business venture, Lef Farms Corp., without her participation, which is deemed insufficient to withstand a motion to dismiss. Other alleged improper actions by the defendants are addressed elsewhere, leading to the conclusion that the motion to dismiss Count IV is allowed.

Count V concerns promissory estoppel and detrimental reliance, where the plaintiff claims that Huntington and PVG promised her founder’s rights and equity in a new business venture. The plaintiff asserts that she reasonably relied on these promises, investing significant time and resources while forgoing other opportunities. To establish promissory estoppel in Massachusetts, a plaintiff must demonstrate that a promise was made that was expected to induce substantial action, that such action occurred, and that avoiding injustice requires enforcing the promise. The plaintiff detailed her reliance on promises made in 2012 and subsequent documentation in 2014, asserting that the defendants later excluded her from the venture without offering any promised rights or compensation. This claim is considered sufficient to survive a motion to dismiss, despite the defendants’ argument that negotiations do not support reasonable reliance.

Plaintiff asserts that Huntington promised a partnership that would include her equity stake, despite not finalizing the specifics before she acted on this promise. Citing precedents, the document emphasizes that when a promisor delays or misleads a promisee, liability can arise even in preliminary negotiations, leading to equitable outcomes. Consequently, the motion to dismiss Count V is denied.

In Count VI, the plaintiff claims that the actions of Huntington, LaDue, and PVG resulted in financial benefits to them at her expense, specifically regarding the retention of her business plans and research. She argues that it is unjust for the defendants to profit from her contributions without compensation. To succeed in her unjust enrichment claim, she must demonstrate that the defendants knowingly benefited at her expense under circumstances rendering their retention of that benefit unjust. Massachusetts law allows for quantum meruit claims based on unjust enrichment, where the plaintiff asserts that she contributed significantly to the business model from 2012 to 2015 without adequate pay. Despite a 2014 consulting agreement that offered her a modest income, she contends this was insufficient compared to her market value and was meant only to provide temporary assistance. After being excluded from the venture without compensation or equity rights, her allegations sufficiently support a claim for unjust enrichment, contradicting the defendants' assertion that she cannot plead this claim due to alleged contract breaches.

A claim of unjust enrichment cannot be pursued by a party with an adequate legal remedy, as established in Fernandes v. Havkin, 731 F.Supp.2d 103, 114 (D. Mass. 2010). However, since the plaintiff claims to have entered a partnership with the defendants, her breach of contract claim is barred, allowing her to seek unjust enrichment for expenses that would unjustly benefit the defendants. Quantum meruit is also a valid recovery theory if a partner is excluded from a partnership before the business opens. While multiple theories cannot yield duplicative damages, the plaintiff may plead both promissory estoppel and unjust enrichment at this stage. 

In Count VII, the plaintiff alleges misappropriation of trade secrets under Massachusetts General Laws Chapter 93, § 42. She asserts possession of confidential trade secrets, reasonable measures to maintain their secrecy, and that defendants unlawfully obtained these secrets through fraud and deception. Under Massachusetts law, misappropriation requires that the plaintiff demonstrate the information qualifies as a trade secret, reasonable steps were taken to preserve its secrecy, and the defendant used improper means to acquire it. The plaintiff failed to sufficiently plead that she took reasonable steps to keep the information secret, as mere discretion in a business relationship is insufficient. Therefore, the claim for misappropriation of trade secrets is subject to dismissal.

The motion to dismiss Count VII is granted. In Count VIII, the plaintiff claims that the defendants made false and material misrepresentations to induce her to share confidential information and to sign a Consulting Agreement without a subsequent Purchase Agreement. She asserts reliance on these misleading representations when engaging in the business venture. According to Federal Rule of Civil Procedure 9(b), allegations of fraud must be stated with particularity, including the time, place, and content of the false representations, as well as the basis for inferring fraudulent intent. The court finds the plaintiff's allegations insufficient to meet this standard, as she does not specify what the misrepresentations were or provide adequate details regarding the defendants' intent. The complaint lacks particulars suggesting fraud in the inducement, leading to the dismissal of Count VIII. 

In Count IX, the plaintiff alleges tortious interference with prospective business relations by Huntington, LaDue, and PVG, claiming they intentionally and improperly interfered with her advantageous business relationship with Mr. LaDue by dismissing her from the venture. Under Massachusetts law, to establish a claim for tortious interference, a plaintiff must demonstrate the existence of a contract or business relationship, the defendants' knowledge of it, intentional interference for an improper purpose or by improper means, and resultant damages.

A claim for interference with an advantageous business relationship necessitates proof that a party, without privilege, intentionally induces a third person to refrain from entering or continuing a business relationship. However, an individual cannot be held liable for tortiously interfering with their own relationships. In this case, the plaintiff's claims against LaDue are dismissed because he cannot tortiously interfere with his own relationships. Furthermore, the plaintiff's allegations against Huntington and PVG also fail since the consulting agreement between LaDue and Huntington undermines her assertion of an advantageous business relationship with LaDue. Although the plaintiff contends that the defendants interfered with her interests in her company by falsely inducing her to form a partnership and usurping the joint venture's identity, Count IX of her complaint explicitly claims tortious interference with her relationship with LaDue. Consequently, the motion to dismiss Count IX is granted.

In Count X, the plaintiff alleges conversion of her trade secrets by Huntington, LaDue, and PVG. Conversion requires proving that one exercised dominion over another's personal property without right, depriving the rightful owner of its use. Traditionally, conversion claims are limited to tangible property, with Massachusetts courts consistently ruling against recovery for the conversion of intangible property. The plaintiff claims that the defendants converted intangible property, specifically her trade secrets. She references proprietary information and her interest in the joint business venture, but her argument that a planned greenhouse constitutes physical property for conversion purposes is rejected, as it does not qualify as tangible property. Thus, her claims of conversion are deemed unviable.

The court finds insufficient evidence that the defendant retains the customer lists relevant to the conversion claim, resulting in the allowance of the motion to dismiss Count X. The defendants' motion to dismiss is granted for Counts I, II, III, IV, VII, VIII, IX, and X, while Counts V and VI are denied. The plaintiff refers to a "partnership" and "venture" interchangeably throughout the complaint, which the court similarly adopts despite the distinctions between the terms. Joint venturers share fiduciary duties akin to partners, with the Uniform Partnership Act being applicable by analogy to joint ventures. The court applies Massachusetts law, as both parties do, despite the ambiguity in the plaintiff's allegations regarding the jurisdiction of actions. The defendants highlight the difficulty in discerning which actions occurred in Massachusetts versus New Hampshire. The plaintiff's claims, particularly regarding breach of contract and entitlement to partnership assets, are weakened, especially since the alleged breach occurred before the partnership's business was fully established. Her assertions of breach due to sham negotiations and retention of equity shares are noted but lack sufficient grounding to support her claims.

Plaintiff's claims regarding sham negotiations, false promises, and co-opting proprietary information are addressed in specified sections of the document. The assertion that defendants usurped corporate opportunities is rejected, as the law mandates a partner to act with utmost good faith and loyalty, disclosing any business opportunities to the partnership. The complaint does not indicate that defendants diverted an opportunity for personal gain; instead, it suggests they proceeded with business without the plaintiff's involvement. The defendants do not claim that promissory estoppel prevents the plaintiff from pursuing unjust enrichment, and there is no precedent showing that one equitable remedy precludes another. Both promissory estoppel and unjust enrichment are available as equitable remedies when no contract exists. Although the plaintiff's claims are statutory, she references common-law misappropriation of trade secrets, which does not affect the outcome, as both claim types are largely equivalent. The plaintiff's assertion that defendants breached confidentiality is inadequately pleaded and fails to demonstrate sufficient measures to protect any trade secrets. Furthermore, her argument lacks evidence of interference with specific business relationships, merely indicating a general interest in her company. Massachusetts law requires proof of an advantageous relationship for tortious interference claims, which the plaintiff does not fulfill. Additionally, without protective measures in place, the plaintiff's trade secret rights may be extinguished if disclosed to unbound parties. Thus, defendants' use of the information is deemed proper, as they utilized what was in the public domain.