Tang v. Vaxin Inc et al
MEMORANDUM OPINION, as set out, re defendants' Motion for Partial Dismissal of Amended Complaint. (Doc. 19.) For reasons stated, defendants' motion, (doc. 19), is due to be granted. An order in conformance herewith will be entered simult aneously with this memorandum opinion. Plaintiff's claims for breach of contract, breach of implied-in-fact contract, unjust enrichment, and race discrimination in violation of 42 U.S.C. § 1981 were not subject to dismissal and remain pending. Signed by Judge Sharon Lovelace Blackburn on 3/31/15. (CTS, )
2015 Mar-31 PM 03:34
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ALABAMA
DE-CHU CHRISTOPHER TANG,
VAXIN, INC., and WILLIAM J.
CASE NO. 2:13-CV-401-SLB
This case is before the court on defendants’ Motion for Partial Dismissal of Amended
Complaint. (Doc. 19.)1 Upon consideration of the motion, the supporting and opposing
memoranda, arguments of counsel and the relevant law, the court finds, for the reasons stated
below, that defendants’ Motion to Dismiss is due to be granted.
STANDARD OF REVIEW
A complaint is required to contain a “short and plain statement of the claim showing
that the pleader is entitled to relief.” FED. R. CIV. P. 8(a)(2). When a plaintiff alleges fraud
or mistake, the complaint must “state with particularity the circumstances constituting fraud
or mistake.” FED. R. CIV. P. 9(b). A defendant may move to dismiss a complaint pursuant to
Federal Rule of Civil Procedure 12(b)(6) if the plaintiff has failed to state a claim upon
Reference to a document number, (“Doc. ___”), references to the number assigned each
document as it is filed in the court’s record.
which relief may be granted. To survive a 12(b)(6) motion, the complaint “does not need
detailed factual allegations”; however, the “plaintiff’s obligation to provide the grounds of
his entitlement to relief requires more than labels and conclusions, and a formulaic recitation
of the elements of a cause of action will not do.” Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 555 (2007) (internal quotation marks and citations omitted). Accordingly, “[f]actual
allegations must be enough to raise a right to relief above the speculative level . . . on the
assumption that all the allegations in the complaint are true (even if doubtful in fact).” Id.
(citations and footnote omitted). The plaintiff need not prove his case, but must plead
“enough facts to state a claim to relief that is plausible on its face.” Id. at 570 (emphasis
added). Additionally, “[w]hen considering a motion to dismiss, all facts set forth in the
plaintiff’s complaint ‘are to be accepted as true and the court limits its consideration to the
pleadings and exhibits attached thereto.’” Grossman v. Nationsbank, N.A., 225 F.3d 1228,
1231 (11th Cir. 2000) (quoting GSW, Inc. v. Long Cnty., 999 F.2d 1508, 1510 (11th Cir.
1993)). Further, all “reasonable inferences” are drawn in favor of the plaintiff. St. George v.
Pinellas Cnty., 285 F.3d 1334, 1337 (11th Cir. 2002). However, “‘[u]nsupported conclusions
of law or of mixed fact and law have long been recognized not to prevent a Rule 12(b)(6)
dismissal.’” Dalrymple v. Reno, 334 F.3d 991, 996 (11th Cir. 2003) (quoting Marsh v. Butler
Cnty., 268 F.3d 1014, 1036 n.16 (11th Cir. 2001)). Therefore, though the court must accept
all factual allegations as true, it is “not bound to accept as true a legal conclusion couched
as a factual allegation.” Iqbal, 556 U.S. at 678 (citation omitted).
FACTUAL AND PROCEDURAL BACKGROUND2
Plaintiff De-chu Christopher Tang is the scientific founder of Vaxin, Inc. (Doc. 14 ¶
9.) During his fourteen year employment, he“brought in more than $30 million of federal
funding for Vaxin, Inc. as the principal investigator on 19 grants and contracts.” (Id. at ¶ 11.)
One project on which plaintiff worked led to the invention and publication of a “drugvaccine duo (DVD),” also known as “RAPIT.” (Id. at ¶ 36, 40.) In 2008, defendant William
Enright became CEO of Vaxin. (Id. at ¶ 12.) Enright refused to pay for a provisional patent
application for the DVD. (Id. at ¶ 36.) Enright also instructed plaintiff not to go to a seminar
in Shanghai for which plaintiff had received a travel grant, saying that “[a]ll the good
conferences can be found in America and Europe.” (Id. at ¶ 25.) Plaintiff is Asian. (Id. at ¶
During plaintiff’s employment, Enright asked plaintiff to guarantee a $100,000
Regional Planning Commission (“RPC”) loan for Vaxin. (Id. at ¶ 62.)3 Plaintiff thought that
since the RPC’s “core mission” is to support Alabama businesses, Vaxin would have to stay
in Alabama for the duration of the loan. (Id. at ¶ 62.) Enright told plaintiff that plaintiff
would only be responsible for $15,000 of the loan because others would help pay off the
loan, although plaintiff does not specify whether this representation was made before or after
As noted above, for purposes of deciding the Motion to Dismiss, the court accepts as true
all facts alleged in the Amended Complaint.
Paragraph 13 on page 3 of document 14 refers to a $200,000 loan from the RPC. It is
unknown whether this is a typographical error and should read $100,000.
plaintiff signed the guarantee on the loan. (Id.) At some point, Vaxin began deferring
plaintiff’s salary. (Id. at ¶ 21, 23.)
On March 13, 2012, Enright “unilaterally” fired plaintiff without giving plaintiff any
warning or reason for the termination. (Id. at ¶ 31, 32, 37, 62.) Enright told plaintiff that he
would remain a guarantor on the RPC loan. (Id. at ¶ 32.) At some point, near the date of his
termination, plaintiff went to a Vaxin secretary’s office and took the desktop computer he
used during his employment, telling the secretary that he had to “work on important tasks,”
including publishing papers and filing patent applications. (Id. at ¶ 32.) Plaintiff alleges that
although only he knows how to identify laboratory materials, he was not allowed to prepare
his successor to use the materials, thereby wasting the materials and millions of dollars worth
of federally-funded projects. (Id. at ¶ 33, 34, 35.) In April 2012, Enright closed Vaxin’s
Birmingham office and moved the business to Maryland. (Id. at ¶¶ 14, 15.) Plaintiff was
replaced with a white person. (Id. at ¶ 27.)
At an unspecified time, plaintiff grew “suspicious that federal funds were being
misused.” (Id. at ¶ 17.) Plaintiff alleges that as principal investigator on 19 federal grants and
contracts, he had a duty to oversee projects. (Id. at ¶ 11, 17.) He alleges that defendants were
“responsible for providing financial reports pertaining to Plaintiff for periodic review as a
default process.” (Id. at ¶ 17.) Plaintiff never received any financial reports on his grants
from defendants. (Id.) Once, presumably before he was terminated, plaintiff “told Enright he
would be happy to help with audits in the future.” (Id.) Plaintiff alleges that he requested
financial reports on federal grants and contracts multiple times, once in June 2012, but does
not specify whether any requests were made before his termination. (Id.) After he was
terminated, plaintiff emailed Enright reminding him of plaintiff’s alleged duties as principal
investigator on federal grants and contracts. (Id.) Defendants did not respond to his requests.
On June 1, 2012, plaintiff’s counsel sent a letter to Enright demanding, among other
things, that plaintiff be paid his deferred salary, accrued sick and vacation time, and that
Vaxin buy back plaintiff’s stock. (Id. at ¶ 41, 50, 54.) On October 3, 2012, defendants’
counsel informed plaintiff’s counsel that defendants recognized Vaxin’s obligation to pay
plaintiff his deferred salary, but that Vaxin was “not in a position to begin making any
payments.” (Id. at ¶ 60, 61.)
On February 27, 2013, plaintiff filed a complaint based on the allegations above
against Enright and Vaxin. (Doc. 1.) The complaint included causes of action under the False
Claims Act (“FCA”) and 42 U.S.C. § 1981. (Id.) After the United States declined to intervene
and the complaint was unsealed, (doc. 5), defendants filed a motion to dismiss, (doc. 10), and
an answer, (doc. 9), in which Vaxin counterclaimed for breach of contract, tortious
interference, conversion, and breach of fiduciary duty. Plaintiff alleges that “[t]hese
counterclaims lack merit and were filed in retaliation for Plaintiff’s filing of a lawsuit
alleging violations of the False Claims Act and 42 U.S.C. § 1981.” (Doc. 14 ¶ 64.) Plaintiff
filed an Amended Complaint asserting claims against both defendants for violations of the
FCA, retaliation in violation of the FCA, racial discrimination and retaliation under 42
U.S.C. § 1981, breach of contract and breach of implied-in-fact contract, unjust enrichment,
and claims against Enright for fraudulent inducement and breach of fiduciary duty. (Doc. 14.)
The Amended Complaint rendered defendant’s first Motion to Dismiss moot, and defendants
have filed a Motion for Partial Dismissal of Amended Complaint. (Doc. 19).
I. False Claims Act Violations
Defendants argue that plaintiff’s cause of action for violation of the FCA should be
dismissed for failure to comply with Rule 9(b) of the Federal Rules of Civil Procedure, which
requires a party to “state with particularity the circumstances constituting fraud or mistake.”
(Doc. 19 at 8 (citing United States ex. rel. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301,
1308-09 (11th Cir. 2002))). Defendants point out that the Amended Complaint does not
identify the “who, what, where, when, and how” of the fraudulent submission, or under
which subsection of 31 U.S.C. § 3729(a) plaintiff is bringing his claim. (Doc. 19 at 9 (citing
Hopper v. Solvay Pharm., Inc., 588 F.3d 1318, 1328-29 (11th Cir. 2009))).
Neglecting to cite to the United States Code does not bode well for plaintiff’s statutory
claim. 31 U.S.C. § 3729(a)(1) describes certain ways in which a person can “present” a false
claim, or fail to “deliver” money or property from the Government, or make a false record
concerning a financial obligation to the government. Plaintiff, on the other hand, is claiming
that the fact that Vaxin and Enright did not allow him to review financial statements about
ways in which federal grant and contract money was spent “indicates fraud,” and that he has
repeatedly sought information to “reveal whether fraud occurred.”4 (Doc. 20 at 2.) It is not
a close question: plaintiff has not presented a claim cognizable under 31 U.S.C. § 3729(a)(1),
nor has he done so with the requisite factual particularity. For the foregoing reasons,
plaintiff’s non-retaliation claim for violation of the FCA is due to be dismissed.
The court would normally allow plaintiff to amend his complaint on this count a
second time. However, plaintiff is apparently using this litigation to “reveal whether fraud
occurred,” in an attempt to support or explain his “suspicion” that grant money might have
been “misused.” (Doc. 20 at 2.) The court finds that granting plaintiff leave to amend his
complaint to comply with Rule 9(b) with respect to this claim would be futile; plaintiff
cannot, without discovery, allege how a false claim was “actually submitted.” See United
States ex rel. Atkins v. McInteer, 470 F.3d 1350, 1359-60 (11th Cir. 2006) (emphasis in
original) (affirming a dismissal of an FCA claim with prejudice because it failed to comply
with Rule 9(b) and explaining that discovery in an FCA suit is not allowed as a means to
identify claims). Apparently, plaintiff does not even suspect that a false claim was submitted.
He suspects that funds already obtained from the government through contracts and grants
were misused. See Bell v. Dean, No. 2:09-CV-1082-WKW, 2010 WL 1856086, at *4 (M.D.
Ala. May 4, 2010) (noting that misuse of federal funds is insufficient).
Essentially, plaintiff is claiming that defendants failed to treat his requests as though he
had subpoena power, and that the court should draw an adverse inference from this as to the
II. Claims of Retaliation in Violation of the FCA
a. Against Vaxin
Vaxin argues that plaintiff fails to state a claim for retaliation under the FCA because
plaintiff does not allege that he engaged in activity protected by the FCA before his
termination. (Doc. 19 at 12.) Vaxin also argues that plaintiff’s “bare allegations” that Vaxin’s
counterclaims “lack merit” do not plausibly suggest that the counterclaims were retaliatory.
(Id. at 13.)
Vaxin argues that to engage in activity protected by 31 U.S.C. § 3730(h), “a plaintiff
must . . . put [the defendant] on notice that he was taking action in furtherance of an action
under the FCA and that litigation was at least a ‘distinct possibility’ at the time of the
plaintiff’s actions.” (Doc. 19 at 11 (quoting U.S. ex rel. Sanchez v. Lymphatx, Inc., 596 F.3d
1300, 1304 (11th Cir. 2010))). Vaxin points out that plaintiff merely requested financial
reports (either before or after termination). (Doc. 19 at 12.) Plaintiff argues he had a “right
and duty” to review financial reports concerning federal contract and grant money, and that
his request to exercise that right and duty “put Defendants on notice of Plaintiff’s belief that
federal funding for contracts and grants for which he was principal investigator was being
fraudulently misused.” (Doc. 20 at 3.) Perhaps anticipating this response, Vaxin argues that
“[m]erely informing an employer of regulatory violations is not enough [to put a defendant
on the requisite notice] because there is no suggestion that the plaintiff is going to report such
non-compliance to government officials or bring his own qui tam action.” (Doc. 19 at 12
(citing Karavelas v. Melrose-Wakefield Hosp., 360 F.3d 220, 237 (1st Cir. 2004))).
The first problem is that plaintiff’s amended complaint does not actually allege when
he first requested to review any financial reports. Therefore, plaintiff cannot show that his
termination occurred as a result of his requests.
Even if he did make these requests, or a request, before he was terminated, plaintiff
does not allege sufficient facts to show how asserting his “right” to do his “duty” to review
financial records concerning federal grant and contract money could have put Vaxin on
notice that there was a “distinct possibility” that they would be sued. Alone, his sudden
interest in the financial records would not be enough. It would be unreasonable to conclude
that Vaxin feared they would be “reported to the government for fraud or sued in a qui tam
action by the employee” simply because he requested—as the principal investigator—to be
involved in the finances of federal grants and contracts. See Lymphatx, 596 F.3d at 1304.5
Plaintiff does not allege that he indicated to Vaxin that his interest in the records was to see
if “unlawful action” had occurred. See id. Therefore, his claim based on retaliatory discharge
One court has noted that the standard from Lymphatx might have been superceded by the
2009 amendments to 31 U.S.C. § 3730(h). Bell v. Dean, No. 2:09-CV-1082-WKW, 2010 WL
1856086, at *4 (M.D. Ala. May 4, 2010). This court doubts that the new language, “because of
. . . other efforts to stop 1 or more violations of this subchapter” means that the standard has
relaxed enough to allow any effort (a request) based on any suspicion that federal-financed funds
have been “misused” to trigger subsection (h) liability. Bell notes that a “violation of the FCA
cannot be based on the mere misuse of federal funds, but requires some nexus to a false claim
made to the United States.” Id. (emphasis in original) (citing United States v. R&F Props. of
Lake County, Inc., 433 F.3d 1349, 1355 (11th Cir. 2005)).
is due to be dismissed. However, the court will allow him to amend his complaint to allege
additional facts, if they exist, that could show the requisite notice.
Addressing plaintiff’s claim of retaliatory counterclaims, Vaxin argues that alleging,
without more, that the claims “lack merit” does not comply with Rule 8(a)’s requirements
as expressed in Twombly and Iqbal. (Doc. 19 at 13.) Plaintiff responds that
counterclaims—apparently, even meritorious counterclaims—can “constitute actionable
retaliation if they are filed against an employee in response to the employee asserting
statutory workplace rights.” (Doc. 20 at 4 (citing Jacques v. DiMarzio, Inc., 216 F. Supp. 2d
139, 141-43 (E.D.N.Y. 2002))).
The FCA would be quite a weapon if it allowed a terminated employee to sue his or
her former employer and gave the employee another cause of action every time the employer
counterclaimed (in effect, granting the employee immunity from suit). Jacques is not the
license plaintiff would need to claim that sort of power. In its single use of the word
“retaliation,” the court said:
the Court sua sponte questioned the viability of defendant’s counterclaim,
characterizing it as an apparent “naked form of retaliation against Jacques, a
vulnerable plaintiff who suffers from a significant mental impairment, for filing
her lawsuit.” The Court afforded defendant’s counsel “the opportunity to
submit legal authority and evidence to justify [the] counterclaim, if it can, and
to explain why Rule 11 sanctions should not be imposed.”
Id. at 141. The court went on to find that Rule 11 sanctions were justified because the
counterclaim was “patently devoid of allegations rising to a colorable claim for any of the
tort theories that defendant’s counsel has belatedly conjured,” and “factually unsupported,
[of a] conclusory lay nature,” and failed to plead the requisite elements of a cause of action.
Id. at 142-43.
One could characterize a frivolous post-termination counterclaim as harassment under
31 U.S.C. § 3730(h)(1). However, plaintiff’s legally conclusory statement that Vaxin’s
counterclaims “lack merit” is insufficient even under a liberal standard. In Ramos v. Hoyle,
No. 08-21809-CIV, 2009 WL 2849093, at *2 (S.D. Fla. 2009), the court allowed an FLSA
retaliation claim to arise from a counterclaim that “had no basis in law or fact.” Without
endorsing that standard, the court notes that plaintiff does not specify whether Vaxin has any
factual basis for its counterclaims. Therefore, plaintiff’s claim for retaliatory counterclaims
is due to be dismissed.
The court will allow plaintiff to amend his complaint to sufficiently allege that the
counterclaims “have no basis in law or fact,” but cautions plaintiff that such an allegation can
not merely be a denial of legal liability on defendant’s counterclaims or a demand of strict
proof of the facts. Plaintiff must attack the supporting facts of defendant’s counterclaims and
allege that they are false or inaccurate,6 or otherwise show that taking Vaxin’s alleged facts
as true, at least one of Vaxin’s counterclaims has no basis in the law.
Should plaintiff choose to allege so, the court reminds him of the requirements of Rule
b. Against Enright
Enright argues that even if plaintiff could successfully assert a claim for retaliation
based on the facts alleged (or those alleged in a second amended complaint), supervisors can
not be liable in their individual capacity under 31 U.S.C. § 3730(h) as a matter of law.
The court agrees. “In determining the meaning of a statutory provision, [courts] look first
to its language, giving the words used their ordinary meaning.” Lawson v. FMR LLC, 134 S.
Ct. 1158, 1165 (March 4, 2014) (citation and internal quotation marks omitted).
31 U.S.C. § 3730(h) says:
(h) Relief from retaliatory actions.-(1) In general.--Any employee, contractor, or agent shall be
entitled to all relief necessary to make that employee, contractor,
or agent whole, if that employee, contractor, or agent is
discharged, demoted, suspended, threatened, harassed, or in any
other manner discriminated against in the terms and conditions
of employment because of lawful acts done by the employee,
contractor, agent or associated others in furtherance of an action
under this section or other efforts to stop 1 or more violations of
(2) Relief.--Relief under paragraph (1) shall include
reinstatement with the same seniority status that employee,
contractor, or agent would have had but for the discrimination,
2 times the amount of back pay, interest on the back pay, and
compensation for any special damages sustained as a result of
the discrimination, including litigation costs and reasonable
attorneys’ fees. An action under this subsection may be brought
in the appropriate district court of the United States for the relief
provided in this subsection.
The question is this: which retaliators are liable to a party entitled to “[r]elief from
retaliatory actions?” While at first glance the passive voice7 in (h)(1) makes this question
difficult, one key is the subsection’s contemplation of a relationship. See Patel v. Wargo, 803
F.2d 632, 635 (11th Cir. 1986) (noting that the Fair Labor Standards Act (FLSA), in 29
U.S.C. § 206(a), “premises liability on an employer-employee relationship”). While “a
person may bring a civil action for a violation of section 3729” under § 3730(b)(1) (emphasis
added), only “an employee, contractor, or agent” is entitled to bring a claim under § 3730(h).
“[D]ischarge, demotion, suspension, threats, harassment, or discrimination in the terms and
conditions of employment  are commonly actions an employer takes against its own
employees.” Lawson, 134 S. Ct. at 1166 (emphasis removed). A supervisor cannot, in his
individual capacity, discharge, demote, or suspend an employee. The court finds that the
plain language of § 3730(h) indicates that supervisors are not individually liable for
retaliation. Therefore, the court holds that, as a matter of law, Enright cannot be liable in his
individual capacity under § 3730(h), and plaintiff’s FCA retaliation claim against him is due
to be dismissed with prejudice.
III. 42 U.S.C. § 1981 Retaliation Against Both Defendants
For the same reasons given in section II part a, supra, plaintiff’s allegation that
Vaxin’s counterclaims “lack merit” is insufficient to state a claim for relief for § 1981
The subject of the verbs “discharged, demoted,” etc., is not explicit.
retaliation, and the claim is due to be dismissed without prejudice. As explained, plaintiff
should use care in amending his complaint on this count if he chooses to do so.
IV. Fraudulent Inducement Against Enright
Plaintiff’s eighth cause of action is entitled “fraudulent inducement,” but the parties
have argued it as though it is a claim for fraudulent misrepresentation. Therefore, the court
will assume the elements of and precedent concerning fraudulent misrepresentation apply.
“To recover on a claim of fraudulent misrepresentation, [a plaintiff] must establish
four elements: (1) a false representation (2) concerning a material existing fact (3) relied
upon by the plaintiff (4) who was damaged as a proximate result.” Fisher v. Comer
Plantation, Inc., 772 So. 2d 455, 463 (Ala. 2000) (internal citations and quotation marks
omitted). Rule 9(b) requires a party to “state with particularity the circumstances constituting
fraud or mistake.” Fed. R. Civ. P. 9(b). The complaint must set forth “(1) precisely what
statements were made . . . (2) the time and place of each such statement and the person
responsible for making [them] . . . (3) the content of such statements and the manner in which
they misled the plaintiff, and (4) what the defendant obtained as a consequence of the
fraud.” Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir. 2001).
Enright argues that plaintiff fails to allege that he made a misrepresentation of existing
fact when asking plaintiff to guarantee the $100,000 loan. (Doc. 19 at 16.) Plaintiff alleges
that he was told that he would only be responsible for $15,000 of the loan, even though he
was asked to sign as a guarantor for a $100,000 loan, “because others would step up to pay
for the loan.” (Doc. 14 at 11.) That is a representation about a future event.8
An additional burden is added to the party alleging misrepresentation in cases
which involve a future act or event. In order for promises or opinions to
constitute fraudulent misrepresentations, there must have been at the time the
representations were made an intention not to do the act promised, and such
promise or opinion must have been given with intent to deceive. A promise,
to constitute fraud, must be made with the intent not to perform it.
Army Aviation Ctr. Fed. Credit Union v. Poston, 460 So. 2d 139, 143 (Ala. 1984). Plaintiff
has not alleged that Enright acted with such intent at the time the statement was made, or
provided any specifics from which that intent could be inferred.9
Plaintiff’s eighth cause of action, for “fraudulent inducement,” is due to be dismissed
without prejudice because it fails to comply with Rule 9(b) and fails to allege the elements
of fraudulent misrepresentation of future event. The court will grant plaintiff leave to amend
his complaint to correct the deficiencies.
V. Breach of Fiduciary Duty Against Enright
Enright argues that plaintiff’s claim for breach of fiduciary duty against Enright is due
to be dismissed because “it is a derivative claim that can only be asserted on behalf of
Plaintiff must realize this, since he repeatedly refers to what “would be” his
responsibility. (See doc. 14 ¶ 62; doc. 20 at 5.) Plaintiff does not allege that Enright told him the
document he was signing made him presently responsible for only $15,000 of the $100,000 loan.
Plaintiff also does not identify a specific time frame in which the statements were made.
(See doc. 14 at 11.) “During his employment” is not specific enough, and does not clarify
whether the allegedly fraudulent statements were made before or after plaintiff signed the loan.
Vaxin,” since the breaches the plaintiff alleges (waste, abuse, mismanagement) affect Vaxin
as a whole and are not unique to plaintiff as a particular minority shareholder. (Doc. 19 at 1718.) Enright argues that plaintiff cannot show a “direct fraud” because he cannot trace the
harms he allegedly suffered to his status as a minority shareholder. (Id. at 19-20.) Plaintiff
argues that these actions worked a unique harm on him: interfering with his patent rights,
failing to advance the DVD technology which plaintiff had developed as an employee, and
deferring his salary.10 (Doc. 20 at 6.)
Plaintiff does not attempt to explain why interfering with his patent rights and failing
to “advance” his inventions are a “direct fraud” on him as a shareholder, and the claims are
not obviously supported. In his response to defendants’ motion, plaintiff cites only one case,
and that for the unremarkable proposition that direct fraud can sustain a direct action. (Doc.
20 at 6 (citing Green v. Bradley Const., Inc., 431 So.2d 1226 (Ala. 1983))). Plaintiff does not
allege that he, as opposed to Vaxin, was to be the recipient of the patent to the DVD
invention. Plaintiff only alleges that Enright had directed him to file a patent application on
the invention. (Doc. 14 ¶ 32.) Plaintiff does not allege that Enright had a fiduciary duty to
advance the DVD technology for plaintiff’s benefit, or that the DVD technology was his
personal asset. Rather, plaintiff complains that he was “told by Enright to leave Vaxin
without any rights,” (Doc. 14 ¶ 40), and alleges that he demanded he be granted the patent
Plaintiff also argues that Enright’s alleged “fraudulent inducement” to sign the guaranty
is a direct fraud, but for the reasons given in Section IV, supra, this part of his claim fails.
rights for DVD, (id. at ¶ 52). If the rights were never his—personally—to begin with, he
cannot claim that Enright breached a fiduciary duty to him by not handing them over. To the
extent that plaintiff is arguing that Enright wasted the potential of the inventions and patents,
“a minority shareholder cannot recover on his own behalf for a director’s waste of corporate
assets.” Brooks v. Hill, 717 So. 2d 759, 767 (Ala. 1998).
Depending on the facts, denying salaried employment in a close corporation could be
a form of minority shareholder oppression, which in turn is a breach of fiduciary duty.
Brooks, 717 So. 2d at 767; Ex parte Brown, 562 So. 2d 485, 492-93 (Ala. 1990) (citing F.H.
O'Neal and R. Thompson, O’Neal’s Oppression of Minority Shareholders § 3:02 (2d ed.
1985)); Fulton v. Callahan, 621 So. 2d 1235, 1247 (Ala. 1993) (“Because of the limited
marketability of their shares and the right of the majority shareholders to control corporate
decision-making in closely held corporations, minority shareholders are restricted in their
ability to realize the value of their investment, whether it be in the form of salary, dividends,
or proceeds from a sale of their stock. Callahan depended, as minority shareholders generally
do, on the Fultons’ treating him fairly.”) (apostrophe in original). Enright argues that
plaintiff’s salary was not denied, but merely deferred, and that this occurred as a result of
Vaxin’s poor financial condition. (Doc. 19 at 19.) Plaintiff disputes Vaxin’s inability to pay,
and argues that since deferral has lasted “years,” it might as well be considered denied. (Doc.
20 at 6.) Plaintiff is right: holding salary hostage for years is effective to oppress a minority
shareholder whether or not it is finally released. Furthermore, plaintiff has alleged that he
was denied the value of salaried employment unfairly because he was terminated without
prior board approval. (Doc. 14 ¶¶ 29-31; doc. 20 at 6.)
Defendant’s Motion to dismiss plaintiff’s claim for breach of fiduciary duty is granted
without prejudice to allow plaintiff to make the necessary allegations with regard to the status
of the parties.11 Plaintiff also will be granted leave to amend his complaint to allege facts
sufficient to state a claim for breach of fiduciary duty with respect to Enright’s other actions.
In light of the reasons stated above, defendants’ motion, (doc. 19), is due to be
granted. Plaintiff’s claims for violation of the FCA against both defendants and FCA
retaliation against Enright will be dismissed with prejudice. Plaintiff will be granted leave
to amend his complaint to sufficiently state a claim for relief on the other counts defendant
moved to dismiss, and should he choose to do so, he should file one completely-integrated
amended complaint. An order in conformance herewith will be entered simultaneously with
this memorandum opinion. Plaintiff’s claims for breach of contract, breach of implied-in-fact
In their reply brief, defendants argue that plaintiff’s claim should be dismissed because
he did not allege that Enright is a majority shareholder or that Vaxin is a closely held corporation.
(Doc. 26 at 7-8 ¶ 13.) Plaintiff merely alleged that Vaxin is a corporation and Enright was its
President and CEO. (Doc. 14 ¶ 6.) Defendants do not cite precedent saying that such allegations
are necessary in the complaint to sustain a claim for oppression based on a fiduciary duty owed
by a majority shareholder to a minority shareholder in a closely held corporation. The court notes
that plaintiff did not get an opportunity to respond to this newly-raised argument. However, the
court is of the opinion that such facts would be necessary.
contract, unjust enrichment, and race discrimination in violation of 42 U.S.C. § 1981 were
not subject to dismissal and remain pending.
DONE this 31st day of March, 2015.
SHARON LOVELACE BLACKBURN
UNITED STATES DISTRICT JUDGE
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