United States District Court, D. Maryland
THEODORE D. CHUANG, District Judge.
This is a Lanham Act trademark infringement, Lanham Act false advertising, and related common law torts action tiled by John-Randall Gorby ("Gorby") on his own behalf and as a derivative action on behalf of Earth Starter. LLC ("Earth, Starter") against Philip-Michael Weiner ("Weiner"), Tumml, Inc. ("Tumml"). and Chadwick van Erbe ("van Erbe"). Before the Court are Tumml's Partial Motion to Dismiss for Failure to State a Claim. ECF No. 7; Weiner's Motion to Dismiss for Failure to State a Claim, ECF No. 11; and van Erbe's Motion to Dismiss for Failure to State a Claim, ECF No. 13. For the reasons set forth below, the Court rinds that Gorby can maintain this suit as a derivative action, and therefore that Weiner's and van Erbe's motions as to Count XIV (Derivative Action) are denied. As to the remaining counts, for the reasons described below, the Court denies Weiner's and van Erbe's motions as to Counts I. It. VI, IX, XI, XIII. and XV: and denies Tumml's motion as to Counts IX. XI, XIII, and XV. The Court grants Weiner's and van Erbe's motions as to Counts III, IV, V, VII, VIII. X, XII, and XVI, and grants Tumml's motion as to Counts IV, VIII, X, and XII. As a result, Counts IV, V, VII, VIII. X, XII, and XVI are dismissed against all Defendants, and Counts I, II, VI, IX, XI, XIII, and XV remain against all Defendants.
BACKGROUND AND PROCEDURAL HISTORY
For purposes of a motion to dismiss, this Court accepts as true the well-pled, non-conclusory factual allegations in a plaintiffs complaint. See Aziz v. Alcolac, Inc., 658 F.3d 388, 390 (4th Cir. 2011).
In March 2011. Gorby, then a student at the University of Maryland studying Environmental Science, developed the idea for "Nourishmats:" "self-watering plastic mats] with color-coded properly-placed holes and seed balls that could he used in urban and suburban settings to establish a small garden." Compl. ¶ 14. In June 2011, Gorby approached Weiner, a University of Maryland undergraduate majoring in Economics, and the two struck up a business partnership relating to this idea. Id. at ¶ 16. They decided to form two companies: Green Earth Innovations, LLC ("Green Earth") and Earth Starter. Id. at ¶ 18. Green Earth would be owned solely by Gorby and would hold all of the patents and intellectual property associated with Nourishmats. Id. They also agreed that they would jointly own Earth Starter, and that Earth Starter would be the operating company for Nourishmats. Id. Gorby and Weiner contacted an attorney to formalize this arrangement. Id. at 19. One year later, in June 2012, Earth Starter was incorporated. Id. at ¶ 20. Their attorney also drafted Articles of Incorporation, but neither Gorby nor Weiner signed them. Resp. to Weiner's and van Erbe's Mot. Dismiss at 9. ECF No. 13. At some later point, Earth Starter trademarked "Nourishmat" and provisionally patented the mat's design. Compl. ¶ 21.
Gorby and Weiner began to build the business. They found a factory in North Carolina and got production underway. Id. at ¶ 22. They advertised the product on the Internet. Id. at ¶ 23. In April 2013, they entered and won the University of Maryland's annual Cupid's Cup, a competition for young entrepreneurs, which came with a prize of $50, 000 in seed money. Id. at ¶ 24. The Nourishmat also won the Cupid's Cup Audience Choice Award, and with it an additional $2, 500 in seed money. Id. at ¶ 25. Gorby and Weiner added to the Cupid's Cup money by raising $100, 000 through crowdsourcing on Kickstarter. Id. at ¶ 26.
At some point in this process, Weiner reached out to Tumml, "an urban impact accelerator which supports early stage companies developing innovative consumer products and services that improve urban living." Id. at ¶ 27. In May 2013, Weiner sat down with Tumml representatives to discuss a relationship; Tumml indicated that it would fund and mentor Earth Starter in exchange for a five percent ownership interest. Id. Weiner and Gorby agreed. In June 2013, Gorby and Weiner headed to San Francisco-where Tumor] is headquartered-to begin working with Tumml in earnest. Id. at ¶ 28.
By August 2013, the relationship between Gorby and Weiner began to sour. Early that month, Weiner offered to buy out Gorby, but Gorby refused. Id. at ¶ 28. On August 23, 2013. Weiner broached the topic again with Gorby, during a meeting which included Clara Brenner, Tumml's Chief Executive Officer (CEO). Id. at ¶ 30. This time. Weiner offered Gorby $5, 000 for the majority of his share of Earth Starter and proposed that Gorby retain an eight percent ownership interest in the company. Id. at ¶ 31. Brenner, who seemed to have advance knowledge of Weiner's proposal, urged Gorby to accept the offer. Id. at ¶ 32. Gorby again refused. Id.
Gorby's second refusal of Weiner's buy-out offer triggered a concerted effort to oust Gorby from Earth Starter. "Immediately after" Gorby rejected Weiner's second buy-out offer, Weiner fired Craig Spahr, an Earth Starter employee "who[m] Weiner viewed as an ally of Gorby." Id. at ¶ 34. "Within a few minutes" of rejecting the offer, Gorby discovered that he was locked out of all of Earth Starter's electronic accounts. Id. at 35. He discovered as well that Weiner had removed all content from Earth Starter's website. Id. An inquiry into Earth Starter's hosting service revealed that the website had been registered only in Weiner's name, leaving Gorby powerless to get the site back up and running. Id. at ¶ 36. As a result, Gorby was left without "any feasible means of communicating with actual and prospective customers." Id. at ¶ 37. Gorby also later found that Weiner had "surreptitiously" instructed their patent attorney to include Weiner on the patent application. "even though Weiner had nothing, to do with the invention of the Nourishmat, " Id. at ¶ 38.
While Earth Starter's operations ground to a halt. Gorby learned that Weiner had started another company, UrbnEarth; that UrbnEarth was "selling garden mats and seed halls that were functionally the same as the products being sold by Earth Starter"; and that Weiner was using Earth Starter's assets and equipment to get UrbnEarth up and running. Id. at ¶ 39. By Gorby's calculations, Weiner used $20, 000 of Earth Starter's money for UrbnEarth's operating expenses. Id. at ¶ 42. Weiner also lured a number of Earth Starter employees to UrbnEarth. Id. at ¶ 43. In particular. Weiner tapped van Erbe, who handled production and inventory for Earth Starter, for a leadership role at UrbnEarth. Id. at ¶¶ 44-45. Van Erbe now identifies himself as UrbnEarth's "co-founder and head of production." Id. at ¶ 45. Upon defecting to UrbnEarth, Van Erbe held a number of pieces of Earth Starter's equipment "ransom"-equipment that was "vital to [Earth Starter's] continued operations"-and demanded that Gorby pay $5.000 for their return. Id. at ¶¶ 46-47, 95. On October 30, 2013, when an Erbe finally returned the equipment, Gorby discovered that some of it had been damaged. Id. at ¶ 46.
In addition to using Earth Starter's assets and equipment. Weiner was "falsely advertis[ing]" Earth Starter's accomplishments as those of UrbnEarth. Id. at ¶ 49. For example, UrbnEarth was billed as having won the Cupid's Cup and was touted as the subject of a number of "laudatory news report's]." reports that had actually been about Earth Starter. Id. On at least one occasion, the "Nourishmat" trademark was used in UrbnEarth promotional materials. Id. at ¶ 55.
Tumml, for its part, backed UrbnEarth and essentially severed ties with Earth Starter. Id. at 41. Tumml is "prominently identified" on UrbnEarth's website as an investor "supplying funding, support and services, " and UrbnEarth is headquartered in Tumml's San Francisco offices. Id. at ¶ 40. Despite "supporting UrbnEarth in competition against Earth Starter, and having no present connection with Earth Starter, " Tumml was, as of the time of Gorby's complaint, still proclaiming its affiliation with Earth Starter. "prominently" identifying Earth Starter on its website as one of the companies in Tumml's mentoring "portfolio." Id. at ¶¶ 41. 51.
On November 4, 2013, Gorby filed suit against Defendants in this Court on his own behalf and on behalf of Earth Starter. ECF No. 1. in his Complaint, he alleges 16 causes of action: (I) false advertising under the Lanham Act, 15 U.S.C. § 1125(a); (H) trademark infringement under the Lanham Act, 15 U.S.C. § 1114(1)(a); (III) breach of contract; (IV) tortious interference with contract; (V) tortious interference with prospective business relations (VI) tortious interference with contract and prospective economic advantage; (VII) breach of fiduciary duty; (VIII) tortious interference with fiduciary duties; (IX) conversion; (X) theft; (XI) misappropriation; (XII) extortion; (XIII) common law unfair competition; (XIV) derivative action; (XV) civil conspiracy; and (XVI) aiding and abetting tortious conduct.
On January 27, 2014. Tumml filed a Partial Motion to Dismiss for Failure to State a Claim asking the Court to dismiss counts IV and VIII-XVI of the Complaint. ECF No. 7. Gorby filed a Memorandum in Opposition to that Motion on February 10, 2014, and Tumml filed its Reply Memorandum on February 19, 2014. ECF Nos. 8, 12. On February 17, 2014, Weiner filed a Motion to Dismiss for Failure to State a Claim. ECF No. 11. On March 6, 2014, van Erbe filed a Motion to Dismiss for Failure to State a Claim. ECF No. 13. On May 27, 2014, Gorby submitted a consolidated Response to Weiner and van Erbe's motions. ECF No. 17. Neither Weiner nor van Erbe filed a Reply Memorandum.
I. Standard of Review
To overcome a Federal Rule of Civil Procedure 12(b)(6) motion, a complaint must allege enough facts to state a plausible claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). A claim is plausible when "the plaintiff pleads factual content that allows the Court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. Legal conclusions or conclusory statements do not suffice and are not entitled to the assumption of truth. Id. In evaluating the sufficiency of the plaintiffs claims, the Court must examine the complaint as a whole, consider the factual allegations in the complaint as true, and construe the factual allegations in the light most favorable to the plaintiff. Albright v. Oliver, 510 U.S. 266, 268 (1994); Lambeth v. Bd. of Comm'rs of Davidson Cnty., 407 F.3d 266, 268 (4th Cir. 2005).
II. Choke of Law
In regard to the federal causes of action-the Lanham Act claims-this Court applies federal law as interpreted by the Fourth Circuit. In regard to the common law causes of action, because this Court sits in Maryland, it looks to Maryland law to determine what law governs those claims. See Branhaven, LLC v. BeefTek, inc., 965 F.Supp.2d 650. 664 (D. Md. 2013) ("When a claim is based on state law, the choice of law rules are those of the state in which the district court sits."). For state common law torts, Maryland applies the law of the state where the injury occurred. See Lab. Corp. of Am. v. Hood, 911 A.2d 841, 845 (Md. 2006). Here, the alleged injuries are economic, rather than personal, and so are traditionally interpreted as accruing where the injured party resides. See 21 M.L.E. Torts § 2 ("The place of injury means the place where the injury was suffered rather than the place where the wrongful act took place[.]"); Restatement of the Law-Conflict of Laws § 145 (-The effect of the loss, which is pecuniary in its nature, will normally be felt most severely at the plaintiffs headquarters or principal place of business."). Accordingly, because Earth Starter is a Maryland company and Gorby is a Maryland resident, any injury they suffered was sustained in this State. This Court therefore applies Maryland law to the state common law causes of action.
III. The Sufficiency of Plaintiffs' Claims
Plaintiffs' complaint, which alleges 16 causes of action implicating different combinations of the three defendants, is a scatter-shot enterprise. In an effort to establish a general framework for the pleading, the Court begins with what Plaintiffs denote as Count XIV-titled "Derivative Action"-which is not a cause of action. but rather factual averments intended to establish Gorby's ability to file a derivative suit on behalf of Earth Starter. The Court then turns to each of Plaintiffs' remaining 15 causes of action in turn.
A. Count XIV: Derivative Action
In Count XIV, Plaintiffs cast this suit as a derivative action brought by Gorby"President- and part-owner" of Earth Starter-on behalf of the company "to remedy injury done to [Earth Starter] by the Defendants." Compl. ¶¶ 99-100. In their Motions to Dismiss, Weiner and van Erbe challenge Corby's ability to maintain such a derivative action. They interpret Counts I, II, V-VII, IX-XIII. and XV-XVI as derivative claims and argue that, as such, they must be dismissed. Specifically, they first contend that Gorby "failed to comply with the substantive requirements to maintain a derivative action" because he did not make a "pre-suit demand" of Earth Starter's Board of Directors to bring this action directly. Weiner Mot. Dismiss at 3, 5; see van Erbe Mot. Dismiss at 5. Second, Defendants contend that Gorby "does not fairly and adequately represent the [i]nterests of Earth Starter's members in enforcing the rights of the company, " Weiner's Mot. at 3 and 7; see van Erbe Mot. Dismiss at 8-10. Neither claim has merit.
Unless there is an otherwise controlling federal law, the requirements for a derivative action are governed by the state of incorporation, here, Maryland. Kamen v. Kemper Financial Services, Inc., 500 U.S. 90. 98 (1991). Under Maryland law, a member of a corporation can file a derivative action if "members with authority to bring the action have refused to bring the action or if an effort to cause those members to bring the action is not likely to succeed." Md. Code Ann., Corp's & Assoc. § 4A-801(b). Maryland courts have interpreted the latter half of this provision as creating a "futility" exception to the demand requirement. Wasserman v. Kay, 14 A.3d 1193. 1217-18 (Md. 2(011) ([I]t is clear that the legislature intended the phrase not likely to succeed' to equate with futility.'" see Parish v. Maryland & Virginia Milk Producers Ass'n, 242 A.2d 512, 544 (Md. 1968) ([N]o... prior demand is required when it would be futile."). To sustain a derivative action, a plaintiff therefore must establish either that he made a demand of members of authority to file suit and failed to gamer majority approval, see Md. Code Ann., Corp.'s & Assoc. 4A-403(b)(2), or that he did not make such a demand because doing so would have been futile.
Gorby concedes that he made no pre-suit demand of Earth Starter's officers and shareholders, but excuses the failure by implicitly invoking the futility exception. Gorby notes that Weiner was CEO of the company and owned 50 percent of its shares. Compl. ¶ 102. With the "primary wrongdoer" owning half of the company, it would, Gorby maintains, have been impossible to garner the required majority approval to file suit. Id. Defendants counter, relying on Werbowsky v. Colloinb. 766 A.2d 123 (Md. 2001), that the futility exception is "very limited" and argue that this case falls outside its ambit. See Weiner Mot. Dismiss at 6; van Erbe Mot. Dismiss at 7. But Werboswky actually undermines their claim. In Werbowsky, the Maryland Court of Appeals explained that while the futility exception should be construed narrowly, it applies where "a majority of the directors are so personally and directly conflicted or committed to the decision in dispute that they cannot reasonably be expected to respond to a demand in good faith and within the ambit of the business judgment rule." 766 A.2d at 144. That reasoning applies here. Weiner, as the alleged "primary wrong-doer" in the case, is personally and directly conflicted, and so could not reasonably be expected to respond in good faith to a demand to sue. Moreover, because Weiner owns 50 percent of Earth Starter, his conflict would make it impossible fur Gorby to garner the required majority approval for a derivative suit. Because the law does not require a futile act, Gorby was not required to make a demand of Earth Starter's officers and shareholders before filing this derivative action.
A plaintiff authorized to file a derivative action may maintain that action only if he "fairly and adequately represent[s] the interests of the members in enforcing the right of the limited liability company." Md. Code Ann., Corp's & Assoc. § 4A-801(c). Weiner and van Erbe argue that Gorby's "true motivation" in filing this suit is "to pursue individual claims against Weiner for what he views as Weiner's mistreatment of him, individually." Weiner Mot. Dismiss at 8; see van Erbe Mot. Dismiss at 9. Weiner and van Erbe contend that because Gorby's motivations are personal, his derivative claims are essentially "afterthoughts" intended merely "to bolster" his individual claims. Id. They conclude therefore that Gorby does not fairly and adequately represent Earth Starter and so cannot maintain this derivative action. This argument warrants scant attention. The gravamen of Gorby's suit is that Weiner, van Erbe, and Tumml traded on Earth Starter's good name to establish and expand UrbnEarth, costing Earth Starter opportunities and revenue. See Compl. ¶ 50. The rights ...