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Innovative Therapies, Inc. v. Meents

United States District Court, Fourth Circuit

June 12, 2013



DEBORAH K. CHASANOW, District Judge.

Presently pending and ready for review in this diversity of citizenship case is the motion filed by Plaintiff/Counter-Defendant Innovative Therapies, Inc. ("ITI") seeking dismissal of Defendant/Counter-Plaintiff Mark S. Meents's counterclaim or, in the alternative, to bifurcate and stay further proceedings relating to the counterclaim. (ECF No. 11). The issues have been fully briefed, and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, Meents's counterclaim will be dismissed without prejudice to his right to file an amended counterclaim within fourteen (14) days, and ITI's alternative request to stay or bifurcate will be denied without prejudice to renewal.

I. Background

ITI is a Delaware corporation engaged in the manufacture and distribution of specialized wound care products and devices. Meents is a former ITI employee. On October 4, 2012, Meents filed a nine-count shareholder's derivative action on behalf of ITI against the company's chief executive officer, Richard C. Vogel, in the Circuit Court for Montgomery County, Maryland, captioned Innovative Therapies, Inc. v. Richard Vogel, No. 369279V ("the State Court Action"). (ECF No. 11-3, Ex. 11). In the State Court Action, Meents alleges that Vogel, in his capacity as an officer and director of ITI, has acted improperly in a number of ways, including by wrongfully taking ITI's intellectual property for his personal gain and benefit; by obligating ITI to pay unnecessary licensing fees to a thirdparty company owned by Vogel; by causing ITI to issue Vogel an unauthorized dividend distribution in an amount that has "no relationship to the number of shares of stock [Vogel] could legitimately own in the company"; and by possibly causing ITI to issue shares to Vogel without adequate consideration. ( See generally id. ). In Counts VI-VII of the State Court Action, Meents prays for an order directing Vogel to return to ITI all dividend distributions to which he was not entitled, along with all stock he unlawfully caused to be issued. ( Id. ¶¶ 49-55).

On November 12, 2012, ITI filed the instant lawsuit against Meents, seeking a declaration that Meents forfeited his shares of ITI stock when he was terminated for cause on July 31, 2012. (ECF No. 1). On November 19, 2012, Vogel moved to dismiss or, in the alternative, to stay the State Court Action, arguing that the outcome of this action - and specifically, any determination as to whether Meents forfeited his shares upon termination - "will be dispositive of Meents's standing" to pursue a shareholder's derivative action under Delaware law. (ECF No. 11-3, Ex. 12). On December 17, 2012, Meents and Vogel agreed to the entry of a consent order in the State Court Action that stayed all proceedings pending the disposition of this lawsuit. (ECF No. 11-3, Ex. 13).

On December 20, 2012, Meents filed an answer to ITI's complaint (ECF No. 7) and a counterclaim (ECF No. 8). In his counterclaim, Meents alleges that, at the time ITI commenced operations in 2007, the company had both voting and non-voting stock, although all shareholders had the same rights to dividends and distributions. ( Id. ¶ 7). According to Meents, ITI issued 4, 000 voting shares to Vogel. ITI also issued 4, 000 non-voting shares to both Meents and Vogel. In August 2008, ITI issued an additional 1, 000 non-voting shares to an Ohio company in exchange for good and valuable consideration. In September 2008, after two original ITI shareholders left the company, their non-voting shares were reallocated, bringing Vogel's nonvoting shares to 7, 000, and Meents's to 5, 500.

After September 2008, Meents purportedly never received any notice from ITI of further shareholder adjustments or of any additional issuance of stock. Meents also asserts that, upon information and belief, no "legitimate" ITI Board of Directors has authorized the issuance of additional shares, nor has the company "received good and valuable consideration for the same." (ECF No. 8 ¶ 10). Meents therefore alleges that, as of August 2011, only 26, 500 total shares of ITI stock should have been outstanding. As between Meents and Vogel, Meents alleges that he owned 5, 500 shares, while Vogel owned 11, 000 shares.

Yet, on August 5, 2011, ITI allegedly filed an "Amended and Restated Certificate of Incorporation, " through which the company purportedly accomplished two things. ( Id. ¶ 11). First, ITI increased the total numbers of its shares to 270, 000. Second, ITI created a single class of common stock, eliminating any distinction between voting and non-voting shares. Then, for the calendar year of 2011, Meents received a dividend of $24, 750, while Vogel received a dividend in excess of $1 million - an amount that, according to Meents, is disproportionate to Vogel's legitimate ownership stake in ITI. Meents therefore alleges that ITI, acting through Vogel, must have issued numerous additional stock certificates to Vogel at some point after September 2008 without consideration, without adequate consideration, and without conducting meetings of directors acting in the best interests of the company, thereby "unlawfully dilut[ing] the shares held by Meents and other shareholders." ( Id. ¶ 16).

Based on these allegations, Meents asserts three counts in his counterclaim. In Count One, Meents seeks a judgment declaring that ITI did not properly authorize the issuance of any stock after September 2008, nor did it receive adequate consideration for such stock, meaning that Meents's 5, 500 shares of ITI stock represent the "same proportionate share of equity in the company as they did" in September 2008. ( Id. ¶¶ 13-21). In Count Two, Meents seeks $600, 000 in money damages based on ITI's alleged breach of contract by failing to issue Meents a dividend for calendar year 2011 that was proportional to his actual equity stake in the company. ( Id. ¶¶ 22-25). In Count Three, Meents seeks (1) an accounting of all dividends paid to Vogel as a shareholder and (2) a judgment in favor of Meents and against ITI "in such amount as will proportionately equalize the dividends paid to Vogel and Meents, as well as ITI's other shareholders." ( Id. ¶¶ 26-29).

On January 24, 2013, ITI filed a motion to dismiss Meents's counterclaim pursuant to Fed.R.Civ.P. 12(b)(6). (ECF No. 11). ITI alternatively seeks dismissal pursuant to Fed.R.Civ.P. 12(b)(1) for lack of standing, or to stay or bifurcate further proceedings relating to Meents's counterclaim pending a determination as to whether he has standing to pursue a derivative action. ( See id. ). Meents filed a response in opposition (ECF No. 15), and ITI replied (ECF No. 16).

II. Standard of Review

The purpose of a motion to dismiss under Rule 12(b)(6) is to test the sufficiency of the complaint. Presley v. City of Charlottesville, 464 F.3d 480, 483 (4th Cir. 2006). A plaintiff's complaint need only satisfy the standard of Rule 8(a), which requires a "short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). "Rule 8(a)(2) still requires a showing, ' rather than a blanket assertion, of entitlement to relief." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 n.3 (2007). That showing must consist of more than "a formulaic recitation of the elements of a cause of action" or "naked assertion[s] devoid of further factual enhancement." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citations omitted).

At this stage, all well-pleaded allegations in a complaint must be considered as true, Albright v. Oliver, 510 U.S. 266, 268 (1994), and all factual allegations must be construed in the light most favorable to the plaintiff, see Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 783 (4th Cir. 1999) (citing Mylan Labs., Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993)). In evaluating the complaint, unsupported legal allegations need not be accepted. Revene v. Charles Cnty. Comm'rs, 882 F.2d 870, 873 (4th Cir. 1989). Legal conclusions couched as factual allegations are insufficient, Iqbal, 556 U.S. at 678, as are conclusory factual allegations devoid of any reference to actual events, United Black Firefighters v. Hirst, 604 F.2d 844, 847 (4th Cir. 1979); see also Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009). "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged, but it has not show[n]... that the pleader is entitled to relief.'" ...

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