HOWELL et al v. ADVANTAGE PAYROLL SERVICES INC et al

Filing 37

ORDER ON DEFENDANTS' MOTION TO DISMISS AND PLAINTIFFS' MOTION TO STRIKE - granting in part and denying in part 6 Motion to Dismiss; denying 17 Motion to Strike ; granting 18 Motion to Amend Complaint. REMINDER: After entry of this Order, if Amending a COMPLAINT, counsel are REQUIRED to separately file the AMENDED COMPLAINT Document. By JUDGE NANCY TORRESEN. (mnw)

UNITED STATES DISTRICT COURT
DISTRICT OF MAINE
JAMES HOWELL et al.
Plaintiffs,
v.
ADVANTAGE PAYROLL SERVICES,
INC. et al.,
Defendants.

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) Docket No. 2:16-cv-438-NT
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ORDER ON DEFENDANTS’ MOTION TO DISMISS AND PLAINTIFFS’
MOTION TO STRIKE
Before me is the Defendants’ motion to dismiss Counts Four through Nine of
the Plaintiffs’ Complaint under Federal Rule of Civil Procedure 12(b)(6) and the
Plaintiffs’ motion to strike the Defendants’ counterclaims under Federal Rule of Civil
Procedure 12(f). Defs.’ Mot. to Dismiss (ECF No. 6); Pl.’s Mot. to Strike (ECF No. 17).
For the following reasons, the motion to dismiss is GRANTED IN PART and
DENIED IN PART. The motion to strike is DENIED.
LEGAL STANDARD
A Rule 12(b)(6) motion to dismiss presents the question of whether the
complaint states a sufficient claim for which relief may be granted. Carrero-Ojeda v.
Autoridad de Energia Electrica, 755 F.3d 711, 717 (1st Cir. 2014). To make this
determination, courts in the First Circuit follow a two-step analysis. First, the court
must “isolate and ignore statements in the complaint that simply offer legal labels
and conclusions or merely rehash cause-of-action elements.” Id. Then, taking all well-

plead facts as true and “drawing all reasonable inferences in [plaintiff's] favor,” the
court must determine whether the complaint “plausibly narrate[s] a claim for relief.”
Id. “Plausible” means “more than a sheer possibility” but does not require all facts
necessary to establish a prima facie case. Rodríguez-Reyes v. Molina-Rodríguez, 711
F.3d 49, 54 (1st Cir. 2013).
Generally, if the defendant introduces documents outside the pleadings, the
court may only consider that material by converting the motion to dismiss into a
motion for summary judgment. Fed. R. Civ. P. 12(d). However, a court may consider
a document not attached to the complaint if it is “incorporated by reference in the
complaint” or “integral to or explicitly relied upon in a complaint.” Jorge v. Rumsfeld,
404 F.3d 556, 559 (1st Cir. 2005). “When the factual allegations of a complaint revolve
around a document whose authenticity is unchallenged, ‘that document effectively
merges into the pleadings and the trial court can review it in deciding a motion to
dismiss under Rule 12(b)(6).’ ” Young v. Lepone, 305 F.3d 1, 11 (1st Cir. 2002) (quoting
Beddall v. State St. Bank & Trust Co., 137 F.3d 12, 17 (1st Cir. 1998)).
FACTUAL ALLEGATIONS
The Plaintiffs in this case are four payroll service companies (“the
Associates”)1 that are franchisees of Defendant Advantage Payroll Services, Inc.
(“Advantage”). Compl. ¶ 1 (ECF No. 1). Over approximately two decades, the
Associates have developed into multimillion dollar businesses. Compl. ¶ 1.

The Associates are James Howell, of Advantage Payroll Services of Alabama; Ronald Rode, of
Payroll Services, Inc. of Louisiana; Chase, Mozzicato, Patz, Inc. (“CMP”) of Massachusetts; and Payroll
Etc., Ltd. of Texas.
1

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Advantage provides its franchisees with access to the Advantage System, a
method for delivering computerized payroll and tax-payment services. Compl. ¶ 1.
The general process is that the franchisees input their clients’ data, Advantage
processes it, and then the franchisees provide their clients with payroll checks or
similar services. Compl. ¶ 18. Advantage led the Associates to believe that the
Advantage System would be regularly updated and improved. Compl. ¶ 19.
Between 1986 and 1999, each of the Associates signed the standard Advantage
Business Services, Inc. Associate License Agreement (“Agreement”) to become
Advantage franchisees. Agreements (ECF Nos. 6-1, 6-2, 6-3, 6-4, 6-5, 6-10). Each
Agreement includes a provision regarding the “protected territory” in which the
Associate’s business is located. Agreement § I.C. This provision limits Advantage’s
ability to license additional payroll franchisees or to “directly process” new payroll
clients in those territories. Agreement § I.C. The Agreement also bars the Associates
from diverting business to competitors while the Agreement is in effect and from
competing with Advantage for four years after the Agreement terminates. Compl.
¶ 26.
Each Agreement states that “this Agreement does not create a fiduciary
relationship” between Advantage and the Associates. Agreement § XVII(A). However,
the Associates trust Advantage to hold their funds in escrow and maintain
confidential data about the Associates and their clients for the sole benefit of the
Associates and their clients. Compl. ¶¶ 21, 23. The Associates also trust Advantage

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to hold the proceeds of sales to the Associates’ clients and remit net receipts to the
Associates periodically. Compl. ¶ 24.
Each Agreement ran for a term of ten years and granted the Associate an
option to renew for one additional ten-year term. Agreement § II.B. Each of the
Associates has renewed its license and signed a Renewal Addendum to Advantage
Business Services, Inc. Associate License Agreement (“the Renewal Addenda”),
which extended each Associate’s license for an additional ten-year term. Compl.
¶¶ 46-47; Renewal Addenda (ECF Nos. 6-6, 6-7, 6-8, 6-9, 6-11). The Renewal Addenda
do not contain any language about additional renewals, but the Associates
“understood and believed” that the Renewal Addenda included an additional ten year
renewal option. Compl. ¶ 47.
In the past two decades, Advantage has gone through some notable changes.
In 1998, Advantage shifted its focus away from franchising and toward a direct sales
model. Compl. ¶ 23. Franchisees became a smaller relative source of revenue, but
remained “an integral part of its overall business.” Compl. ¶ 23. Then, in 2002,
Defendant Paychex, Inc. (“Paychex”), a primary competitor, bought Advantage
outright. Compl. ¶¶ 2, 29.
Following the sale, on October 9, 2002, Charles Lathrop, “who had been
Advantage’s Chairman and CEO and eventually became a Paychex employee,” sent
an email (“the Lathrop Memo”) to all the Advantage franchisees to reassure them
about their position. Compl. ¶ 32; ECF No. 6-12. The Lathrop Memo stated that:
Paychex sales representatives had been told not to solicit the Associates’ clients; they

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would receive no commission or credit if Associates’ clients became Paychex clients;
and Paychex would “not tolerate any malicious representation regarding the nature
of the Associate relationship or the future of the Advantage name and/or system.”
Lathrop Memo; Compl. ¶ 33. In addition, the Lathrop Memo came with an attached
letter from Paychex Chairman Thomas Golisano, which the Memo stated would
“explain[] Paychex’[s] ongoing support for the Associate channel.” Lathrop Memo;
Compl. ¶ 32. The Lathrop Memo further stated that the Memo and attached letter
together “articulate[d] our continued commitment to our obligations under the
License Agreements.” Lathrop Memo.
Relying on the Lathrop Memo’s assurances, the Associates renewed their
Agreements between 2004 and 2009 and continued to invest in their businesses.
Compl. ¶ 35. However, the Associates have discovered that since the 2002 purchase,
Paychex has “engaged in a long-term strategy to put the Associates out of business,
and to capture for itself all Advantage- and Associate-owned client relationships
supported by the Advantage System.” Compl. ¶ 3.

The

number

of

Advantage

franchises has dropped from fifteen in 2002 to six. Compl. ¶ 36.
The remaining Associates want to continue to operate their franchises but face
what they characterize as various forms of pressure from Paychex to close. Compl. ¶
57. First, the Paychex takeover has harmed the Advantage brand. Compl ¶ 43. Senior
officers at the Paychex headquarters in New York are now also the senior officers for
Advantage. Compl. ¶¶ 37, 38. Advantage sales, technical support, and payroll
processing are now handled by Paychex personnel. Compl. ¶ 36. In addition,

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Advantage is converting its non-franchise clients to the Paychex platform, and,
recently, when Paychex employees have emailed Associates’ clients on behalf of
Advantage, they have used their @paychex.com email address. Compl. ¶¶ 43, 44.
These practices create the impression among the Associates’ clients and others that
Paychex and Advantage are one company. Compl ¶ 43.
Second, the Associates believe that Paychex/Advantage sales representatives
have been “actively soliciting” the Associates’ clients in the Associates’ protected
territories. Compl. ¶ 42. The 2002 sale granted Paychex access to the Associates’
confidential client information and the “tools of their craft.” Compl. ¶¶ 2, 30. And “in
most cases” the Associates have had “no practical way” to determine whether their
clients who moved to Paychex received improper solicitations. Compl. ¶ 41.
Third, despite the reduction in investment in the Advantage System, “Paychex
has increased the wholesale price charged by Advantage to the Associates by 4%
almost every year.” Compl. ¶ 40.
Fourth, Paychex has indicated it will not renew the Associates’ contracts going
forward. Compl. ¶¶ 3, 47. In 2014, Howell attempted to renew his twenty-year-old
franchise for a third ten-year term, but Advantage only agreed to a series of short
term renewals. Compl. ¶ 48. In 2016, Payroll Etc. also attempted to renew its
franchise for an additional ten-year term, but Advantage agreed only to a six-month
renewal. Compl. ¶¶ 53, 54. The remaining Associates assert that they have renewal
options and want to exercise them. Compl. ¶ 57. The Associates believe that the
purpose of the short term renewal strategy is to “promote uncertainty and bring

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maximum pressure on the Associates to abandon their franchises or sell their
business to Paychex for less than fair value.” Compl. ¶ 55.
Finally, Advantage’s efforts to update and improve the Advantage System and
remain competitive have effectively ceased. Compl. ¶ 39. The Associates have been
forced to engage outside vendors for supplemental products and services, which do
not integrate fully with the Advantage System. Compl. ¶ 40. Paychex told the
Associates that it intends to shut down the Advantage System in approximately three
years, which coincides with the expiration of the remaining Agreements. Compl. ¶¶ 3,
50. Because the Associates rely on the Advantage System, they believe this would
force them out of business and allow Paychex to take over their accounts. Compl. ¶ 3.
Paychex also has indicated to the Associates that, in the alternative, it may continue
to operate the Advantage System, but only for the purpose of moving all of the
Associates’ clients over to the Paychex system. Compl. ¶¶ 3, 51.
The Complaint references and relies upon the Agreements, the Renewal
Addenda, and the Lathrop Memo. The Defendants attached these documents to their
motion to dismiss. Because the Plaintiffs do not challenge the authenticity of the
Defendants’ attachments, I will consider them in my analysis of the motion to
dismiss. See Young v. Lepone, 305 F.3d 1, 11 (1st Cir. 2002).

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DISCUSSION
The Defendants move to dismiss Counts Four through Nine.2 The unaddressed
Counts One through Three seek declaratory judgment regarding the scope and
enforceability of the contractual right to renewal, the restrictive covenants, and the
assignment of franchisee clients back to Advantage upon termination of the franchise.
Compl. ¶¶ 61-80.
Before reaching the substantive analysis, I must address the choice of law. The
Defendants claim that Maine law governs. They note that the Agreements contain a
choice of Maine law clause and that matters before this Court under diversity
jurisdiction are subject to Maine choice of law rules, which favor enforcing contractual
choice of law provisions where the parties regularly conduct business in Maine. Defs.’
Mot. to Dismiss 6. The Plaintiffs “do not concede” that Maine law applies, but “assume
arguendo” that Maine law applies for the purposes of this motion. Accordingly, I will
apply Maine law.

The Plaintiffs assert that the Defendants waived their right to file a 12(b)(6) motion because
they filed their Answer to the Complaint before filing their motion to dismiss. Pls.’ Opp’n 4-5 (ECF No.
18). A motion under 12(b) “must be made before pleading if a responsive pleading is allowed.” Fed. R.
Civ. P. 12(b); see also 5C Charles Alan Wright & Arthur R. Miller, Fed. Prac. & Proc. Civ. § 1361 (3d
ed.) (“If the defendant decides to assert a Rule 12(b) defense by motion, then he must do so before filing
the answer.”). Technically, it was improper for the Defendants to first file an Answer and then move
to dismiss under Federal Rule of Civil Procedure 12(b)(6). However, courts have not interpreted this
timing provision strictly. Where, as here, the Defendants filed their motion to dismiss just minutes
after their Answer, disallowing the 12(b)(6) motion would be an unfair elevation of form over
substance. As other judges in this District have done, I treat the motion to dismiss as being filed
simultaneously with the Answer, and I find that the Defendants have not waived their right to file a
12(b)(6) motion. See Thayer Corp. v. Reed, No. 2:10-423, 2011 WL 2682723, at *3-4 (D. Me. Jul. 11,
2011); McCarthy v. Inhabitants of Town of Kennebunkport, 366 F. Supp. 2d 165, 166 n.2 (D. Me. 2005).
2

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I.

Counts Four, Six, Seven, Eight, and Nine
The Defendants move to dismiss counts four, six, eight, and nine—asserting

breaches of contract, breaches of fiduciary duty, tortious interference, and false
representations, respectively—on the grounds that they fail to state plausible claims
upon which relief can be granted.
A.

Count Four—Breaches of Contract

In Count Four, the Plaintiffs assert that Advantage breached the contracts in
four ways: (i) by failing to recognize the Associates’ renewal rights under the
Agreements § II.B (the “renewal” breach); (ii) by failing to pay the Associates, as
required by § IV.B of the Agreements, income from interest earned on payroll deposits
of the Associates’ clients during the “float” period when the Defendants held the
clients’ money (the “float” breach); (iii) by directly processing new payroll clients in
the protected territories in violation of § I.C of the Agreements (the “poaching”
breach); and (iv) by breaching the terms of the Lathrop Memo by soliciting the
Associates’ clients and causing them to switch to Paychex (the “Lathrop” breach).
Compl. ¶¶ 81-86.
The Defendants make no effort to dismiss the renewal breach claim. They
contend that the float, poaching, and Lathrop breach claims should be dismissed or
at least temporally limited. Defs.’ Mot. to Dismiss 6-7. I consider the Defendants’
temporal limitation argument first. The Defendants note that under the terms of the
Renewal Addenda, the Plaintiffs unconditionally released “any and all claims or
demands” that relate to the Agreement up through the date they signed the

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Addenda.3 Defs.’ Mot. to Dismiss 7. Also, the Defendants contend that some of the
Agreements at issue contain a one-year limitations period, and for those agreements,
claims that arose prior to August 26, 2015, (one year before the Associates filed the
Complaint) are barred.4
The Associates assert that the alleged breaches of contract “occurred in 2014
or later” and “continued right up to the filing of this litigation.” Pls.’ Opp’n 7-8. The
Complaint alleges that Advantage “failed to remit to the Associates the income
derived from . . . the interest earned on the payroll deposits of the Precision’s clients”
and is “actively soliciting business” in the protected territories. Compl. ¶¶ 42, 83. The
Associates also contend that the discovery rule and doctrines of equitable tolling could
apply to defeat any statute of limitations defense. Pls.’s Opp’n 8.
“Where the dates included in the complaint show that the limitations period
has been exceeded and the complaint fails to ‘sketch a factual predicate’ that would
warrant the application of either a different statute of limitations period or equitable
estoppel, dismissal is appropriate.” Santana–Castro v. Toledo–Davila, 579 F.3d 109,
113-14 (1st Cir. 2009) (quoting Trans-Spec Truck Service, Inc. v. Caterpillar Inc., 524
F.3d 315, 320 (1st Cir. 2008); see also Richards v. City of Bangor, 878 F. Supp. 2d 271,

Plaintiff Howell’s Renewal Addendum is dated February 1, 2006. (ECF No. 6-6). Plaintiff
CMP’s Renewal Addendum is dated February 15, 2007. (ECF No. 6-7). Plaintiff Payroll Etc.’s Renewal
Addenda are dated November 14, 2006. (ECF Nos. 6-8, 6-9)). Plaintiff Rode’s latest Renewal
Addendum is dated September 13, 2009. (ECF No. 6-11).
3

Advantage included a one-year limitations period in the Agreements § XXII with Howell, CMP,
and Payroll Etc.-Lubbock, as well as Rode’s first Renewal Addendum. (ECF Nos. 6-1, 6-2, 6-4, 6-10).
There is no one-year limitations period in Advantage’s initial Agreements with Payroll Etc.-Midland
or with Rode. (ECF Nos. 6-3, 6-5). To the extent Payroll Etc. or Rode allege a viable claim with respect
to these contracts, the Defendants contend that Maine’s six-year statute of limitations governs. See 14
M.R.S.A. § 752 (2003).
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276 (D. Me. 2012) (“[f]acts supporting the [limitations] defense should be clear on the
face of the plaintiff’s pleadings.”). The Plaintiffs have alleged breaches of contract
that fall within even the shortest one-year statute of limitations. While the
Defendants’ temporal arguments may be relevant to the breadth of discovery, they do
not support dismissal of Count Four for failure to state a claim.
The Defendants separately argue that the Lathrop Memo is not a contract and
therefore cannot be the basis of a breach of contract claim. Defs.’ Mot. to Dismiss 9.
In their opposition, the Plaintiffs seem to refine their Count Four claim: “the only
inquiry is whether the allegations in the Complaint with respect to the Lathrop Memo
support the Associates’ claim that Advantage has breached its obligations under the
Franchise Agreements.” Pls.’s Opp’n 10. Even if the Lathrop Memo does not stand on
its own as a contract, other parts of Count Four do state plausible claims for relief.
The issue of how to treat the Lathrop Memo will benefit from further factual
development and can be addressed at a later stage in the proceedings.
Accordingly, the motion to dismiss Count Four will be denied.
B.

Count Six—Breaches of Fiduciary Duty

Count Six alleges breaches of fiduciary duty against Advantage and Paychex,
and the Defendants assert that they owe no such duty to the Associates. The elements
of a fiduciary relationship are (i) the “actual placing of trust and confidence in fact by
one party in another” and (ii) “a great disparity of position and influence between the
parties.” Combined Energies v. CCI, Inc., 628 F. Supp. 2d 226, 238 (D. Me. 2009)
(quoting Bryan R. v. Watchtower Bible & Tract Soc’y of N.Y., Inc., 738 A.2d 839, 846
(Me. 1999)).
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As a general rule, a fiduciary duty does not arise from a franchise relationship.
Combined Energies, 628 F. Supp. 2d at 238. However, the facts in an exceptional
situation may give rise to a fiduciary duty. Maine law requires that, “to survive a
motion to dismiss a claim for breach of fiduciary duty, the plaintiff must set forth
specific facts constituting the alleged relationship with sufficient particularity to
enable the court to determine whether, if true, such facts could give rise to a fiduciary
relationship.” Bryan R., 738 A.2d at 846-47.
Here the Plaintiffs assert that they trusted Advantage to handle their clients’
payments, distribute payment shares to the Associates, and guard confidential
information about the Associates and their clients. Compl. ¶¶ 21-24, 93. In addition,
they allege that Advantage has superior position and influence because it is the locus
of company management and finances, and it maintains the corporate brand and
Advantage System. Compl. ¶¶ 93, 95. These allegations alone likely are insufficient
to take this case out of the general rule against fiduciary liability for franchisors.
In this case, the Associates face an additional barrier. The Agreements signed
by the Associates expressly disclaim that the contracts created a fiduciary
relationship. Agreement § XVII(A). Courts have upheld similar fiduciary disclaimers
where the contract provision was clear and unambiguous. First NH Banks Granite
State v. Scarborough, 615 A.2d 248, 250 (Me. 1992) (finding no fiduciary relationship
where, inter alia, a creditor-debtor commitment letter disclaimed a fiduciary
relationship); Cooper v. Parsky, 140 F.3d 433, 439 (2d Cir. 1998) (holding that a party
“may not sue upon a duty that was expressly excluded from the Agreement”); Summit

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Properties Int’l, LLC v. Ladies Prof’l Golf Ass’n, No. 07-10407, 2010 WL 2382405, at
*7 (S.D.N.Y. June 14, 2010) (listing cases); cf. Burten v. Milton Bradley Co., 763 F.2d
461, 464 (1st Cir. 1985) (reciting the rule that “express disclaimer by the disclosee of
a confidential relationship from the outset will dispel the existence of such a
relationship,” but finding the disclaimer agreed to by the parties was not express).
In light of the parties’ express disavowal of a fiduciary relationship and the
absence of an allegation that the contracts were ambiguous and should not control or
that they were not arms-length agreements between sophisticated business people,
the Associates have not established a plausible basis for fiduciary liability.
Accordingly, the motion to dismiss Count Six will be granted.
C.

Count Eight – Tortious Interference

Count Eight accuses Paychex of tortious interference with the contracts or
relationships between the Associates and Advantage, as well as those between the
Associates and their clients. Compl. ¶¶ 103-107. A tortious interference claim
requires “(1) that a valid contract or prospective economic advantage existed; (2) that
the defendant interfered with that contract or advantage through fraud or
intimidation; and (3) that such interference proximately caused damages.” Combined
Energies, 628 F. Supp. 2d at 229; Currie v. Indus. Sec., Inc., 915 A.2d 400, 408 (Me.
2007).
The second element of tortious interference requires fraud or intimidation. The
five elements necessary to establish fraud are (i) a false representation (ii) of a
material fact, (iii) with knowledge of its falsity or reckless disregard for whether it is
true or false, (iv) for the purpose of inducing another to act in reliance on the
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representation, and (v) the other justifiably relies to her detriment. Combined
Energies, 628 F. Supp. 2d at 229; Rutland v. Mullen, 798 A.2d 1104, 1111 (Me. 2002);
see also Restatement (Second) of Torts §§ 525-30 (1977). Intimidation in this context
means coercion, extortion, or other conduct that “ ‘mak[es] it clear’ to the party with
which the plaintiff had contracted that the only manner in which that party could
avail itself of a particular benefit of working with defendant would be to breach its
contract with plaintiff.” Rutland, 798 A.2d at 1111 (quoting Pombriant v. Blue
Cross/Blue Shield of Me., 562 A.2d 656, 659 (Me. 1989)); Currie, 915 A.2d at 408.
Federal Rule of Civil Procedure 9(b) requires that an allegation of fraud state
the facts of the fraud “with particularity,” meaning the “time, place and content of an
alleged false representation.” Hayduk v. Lanna, 775 F.2d 441, 444 (1st Cir. 1985).
The plaintiff may allege the defendant’s intent or knowledge generally. Fed. R. Civ.
P. 9(b).
Count Eight fails to identify any interference by “fraud” or “intimidation.” The
assertion “Paychex was aware of the contracts referenced above, and interfered with
such contracts through unlawful or improper means” is conclusory and must be
disregarded. Compl. ¶ 105; see Carrero-Ojeda, 755 F.3d at 717. The subsequent
assertion that “Paychex caused Advantage to breach its contracts with the Plaintiffs
by processing . . . new payroll clients in the Protected Territories” provides some
specificity about which provision was allegedly breached, but not any of the elements
of fraud or intimidation. Compl. ¶¶ 44, 106. Similarly, the allegation that “Paychex
also caused certain of the Plaintiffs’ clients to switch from the Advantage System to

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products and services offered by Paychex, either directly or through its complete
control over Advantage” fails to develop the elements of fraud or intimidation. Compl.
¶ 106.
In their opposition to the motion to dismiss, the Associates point to additional
instances of interference, but they again fail to identify either indications of fraud
and intimidation or of specific contracts with clients. Pls.’ Opp’n 17-18. For example,
the Associates reiterate the allegation that Paychex sales representatives emailed
the Associates’ clients on behalf of Advantage from their Paychex email address and
that this created the impression that Advantage and its Associates are going out of
business. See Compl. ¶ 43. The Plaintiffs also assert that Paychex “cause[d] confusion
among the Associates’ clients and adversely affect[ed] the Associates’ ability to
compete for new clients.” Compl. ¶ 43. These examples fail to provide specific facts
about any particular business relationships or interference by fraud or coercion.
Finally, the Plaintiffs point to the Lathrop Memo and commitments given by
Paychex5 to the Associates that Paychex sales representatives would not solicit the
Associates’ clients or sully the Advantage name. See Compl. ¶ 109. The Plaintiffs
claim that Lathrop’s assurances, which were reiterated over 14 years and as recently
as 2016, were false and the Associates relied on them when they made their decisions

The Defendants object that the Lathrop memo was not a Paychex representation at all because
it came from an Advantage official. Indeed, the Plaintiffs’ assertion that the Lathrop Memo
representations were made “by or on behalf of” Paychex is not expressly substantiated. Drawing all
alleged facts in the Plaintiffs’ favor, however, I can make the inference that the Lathrop Memo was a
Paychex representation because the Memo was sent after Paychex bought Advantage, addressed
Paychex sales conduct, and came with an affirming letter from Paychex Chairman Thomas Golisano.
Thus, the Lathrop Memo may stand as a plausible Paychex representation at this stage in the
proceeding.
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to renew their Agreements. But the Complaint contains no facts to suggest that the
Lathrop Memo was false when it was made, or that Paychex had knowledge or
recklessly disregarded its falsity. Further, it is not plausible that an email written by
Lathrop in 2002 would years later induce the Associates to renew their Agreements.
Although the Plaintiffs claim that similar statements were repeated over 14 years,
they fail to provide any further details, and thus they fail to meet the specificity
required by Rule 9(b). Without facts regarding fraud or intimidation, Count Eight
does not state a plausible claim for tortious interference. Accordingly, Count Eight
will be dismissed.
D.

Count Nine—Misrepresentation

Count Nine alleges intentional and negligent misrepresentation claims against
Paychex. Compl. ¶¶ 109-10. Intentional misrepresentation is considered “a species of
fraud,” and sufficient pleadings must be stated with particularity. Alt. Sys. Concepts,
Inc. v. Synopsys, Inc., 374 F.3d 23, 29 (1st Cir. 2004). A negligent misrepresentation
claim may be established against one who, in the (i) course of business or a
transaction in which he has a pecuniary interest, (ii) supplies false information
without reasonable care or competence, (iii) for the guidance of others in their
business transactions, and (iv) the other party justifiably relies on the information
(v) to her detriment. Rand v. Bath Iron Works Corp., 832 A.2d 771, 774 (Me. 2003)
(citation omitted); see also Restatement (Second) of Torts § 552(a) (1977).
The Complaint alleges:
Pursuant to the Lathrop Memo, Paychex represented that it was
committed to maintaining the Advantage System and causing
Advantage to honor its commitments under the Franchise Agreements.
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Specifically, Paychex represented to the Plaintiffs that its sales
representatives had been instructed “not to solicit” any clients serviced
by the Plaintiffs, that its sales representatives would receive “no
commission or sales credit” if the Plaintiffs’ clients became clients of
Paychex, and that Paychex would “not tolerate any malicious
misrepresentation regarding the nature of the Associate relationship or
the future of the Advantage name and/or system.”
Compl. ¶ 109; see also Compl. ¶¶ 32-33. The Complaint further alleges Paychex
repeated the Lathrop Memo representations “many times over the last 14 years,
including as recently as 2016,” and that all of these representations were:
(a) false, (b) made by or on behalf of Paychex, (c) material to the
Plaintiffs’ decision to renew their Franchise Agreements, (d) material to
the Plaintiffs’ decisions to continue to operate and invest money in their
franchise, (e) intended to induce action or forbearance on the part of the
Plaintiffs, and (f) knowingly false or made with reckless disregard for
the truth, or, in the alternative, communicated to the Plaintiffs without
reasonable care or competence.
Compl. ¶ 110.
The Plaintiffs do little more than plead the black letter elements. For the
reasons stated in the section on Count Eight, I conclude that Count Nine fails to
plausibly allege a claim for intentional or negligent misrepresentation. See Grant v.
Target Corp., 126 F. Supp. 3d 183, 191 (D. Mass. 2015) (dismissing a
misrepresentation claim where the plaintiff “plead no facts plausibly suggesting that
the[] statements were false when made, or that [the defendant] knew of or recklessly
disregarded their falsity.”); see also Cutler v. Rancher Energy Corp., No. 13-906, 2014
WL 1153054, at *7 (C.D. Cal. Mar. 11, 2014) (finding that the complaint failed to
satisfy the Twombly pleading standard because it does not adequately establish that
the Defendant lacked reasonable grounds for believing his statements were true).

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Accordingly, the Associates fail to state a claim of intentional or negligent
misrepresentation for which relief can be granted, and Count Nine will be dismissed.6
II.

Counts Five and Seven—Relief
The Defendants also seek to dismiss Count Five, which is styled “Declaratory

Judgment – Protected Territories” and Count Seven, which is entitled “Alter Ego/Veil
Piercing.” I treat the motion to dismiss these counts separately from the others
because technically they are not separate causes of action. Count Five seeks
alternative relief against Advantage and Paychex, and Count Seven sets forth an
alternative theory of liability that, if successful, would make Paychex liable for
actions of Advantage.
Under Rule 8(a), “[a] pleading that states a claim for relief must contain . . . a
short and plain statement of the claim showing that the pleader is entitled to relief;
and a demand for the relief sought, which may include relief in the alternative or
different types of relief.” Rule 8(d)(1) specifically states: “Each allegation must be
simple, concise and direct. No technical form is required.” And Rule 8(d)(2) states: “A
party may set out 2 or more statements of a claim . . . alternatively or hypothetically,
either in a single count . . . or in separate ones.” Although it makes things easier to
analyze when each count of a complaint demarks a separate substantive cause of

This determination leaves only breach of contract claims in the Complaint. “Contract damages
are more limited than compensatory damages for a tort and, ‘[n]o matter how egregious the breach,
punitive damages are unavailable under Maine law for breach of contract.’ ” Stull v. First Am. Title
Ins. Co., 745 A.2d 975, 981 (Me. 2000) (quoting Drinkwater v. Patten Realty Corp., 563 A.2d 772, 776
(Me. 1989)).
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action, plaintiffs are not required to set forth their complaint in any particular
manner.
A.

Count Five—Declaratory Judgment

In Count Five, the Associates seek a declaratory judgment that “every sale to
a new client in a Protected Territory by an Advantage/Paychex sales representative
constitutes a breach of the Franchise Agreement.” Compl. ¶ 90. The Defendants argue
that Count Five should be dismissed as superfluous because it is “almost identical”
to the Count Four breach of contract claim and the Count Seven claim that Advantage
is the alter ego of Paychex.7 Defs.’ Mot. to Dismiss 10; Defs.’ Reply 7 (ECF No. 29).
The Plaintiffs argue that Count Five seeks forward looking equitable relief and
related “necessary and proper relief” under 28 U.S.C. § 2201 that was not requested
in Count Four. Further, Count Five adds Paychex as a Defendant.
The First Circuit has explained that the Declaratory Judgment Act “28 U.S.C.
§ 2201(a), creates a remedy, not a cause of action.” Buck v. American Airlines, Inc.,
476 F.3d 29, 33 n.3 (1st Cir. 2007). The Act allows district courts the discretion to
grant declaratory relief, but it “presupposes the existence of a judicially remediable
right.” Schilling v. Rogers, 363 U.S. 666, 677 (1960). So although Count Five is set

Pursuing a similar theory, the Plaintiffs move to strike the Defendants’ three counterclaims
as redundant. Pls.’ Mot. to Strike (ECF No. 17). Courts have considerable discretion under Federal
Rule of Civil Procedure 12(f) to “strike from a pleading an insufficient defense or any redundant,
immaterial, impertinent, or scandalous matter.” See Alvarado–Morales v. Digital Equip. Corp., 843
F.2d 613, 618 (1st Cir. 1988). Rule 12(f) motions are disfavored and “rarely granted absent of showing
of prejudice to the moving party.” Sebunya v. Holder, No. 12-67, 2012 WL 5993160, at *1 (D. Me. Nov.
30, 2012) (internal quotation marks omitted); see also Zurich Am. Ins. Co. v. Watts Regulator Co., 796
F. Supp. 2d 240, 246 (D. Mass. 2011). Here, the Defendants’ counterclaims seek a declaratory judgment
that their interpretation of the contract is the correct one, and the counterclaims would not necessarily
be rendered moot by the adjudication of the Plaintiffs’ claims. See 6 Alan Wright & Arthur Miller Fed.
Prac. & Proc. Civ. § 1406 (3d ed.). The motion to strike is therefore DENIED.
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forth as a free-standing claim, I will treat it as a separate request for relief. As such,
the relief requested in Count Five is not entirely redundant to Count Four, and it is
not appropriate at this stage to treat the Count as superfluous. The motion to dismiss
Count Five will be denied.
B.

Count Seven—Alter Ego/Veil Piercing

Under Count Seven, the Associates claim that the Court should pierce the
corporate veil under an alter ego theory to hold Paychex jointly and severally liable
for all relief entered against Advantage. Compl. ¶¶ 98-102. In Maine, “[a]s a matter
of public policy, corporations are separate legal entities with limited liability.” GMAC
Comm. Mortg. Corp. v. Gleichman, 84 F. Supp. 2d 127, 140 (D. Me. 1999) (internal
quotation marks omitted). A court may nonetheless pierce the corporate veil “when
equity so demands, and may disregard the corporate entity ‘when used to cover fraud
or illegality, or to justify a wrong.’ ” Johnson v. Exclusive Props. Unlimited, 720 A.2d
568, 571 (Me. 1998) (quoting Anderson v. Kennebec River Pulp & Paper Co., 433 A.2d
752, 756 n.5 (Me. 1981)).
Piercing the corporate veil is, as the Defendants note, not a cause of action
itself, but rather an equitable remedy that allows a court to disregard a corporate
entity and award relief against the individual or entity behind the veil.8 Mitsubishi
Caterpillar Forklift America, Inc. v. Superior Serv. Ass’n, Inc., 81 F. Supp. 2d 101,

Although the alter ego theory often is used to unveil an individual hiding behind a corporate
form, the doctrine can also be used in other contexts. “Where all the elements of a de facto merger exist
except that the predecessor corporation is not dissolved but rather is a wholly-owned subsidiary
stripped of all its assets for the exclusive benefit of its successor-parent and operated as a mere
instrumentality of the parent, the parent may be held responsible for the liability of the subsidiary by
piercing the corporate veil.” 15 Fletcher Cyclopedia of the Law of Corporations § 7124.20 (2016).
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112-13 (D. Me. 1999); Paper Allied-Industrial, Chemical and Energy Workers Inter.
Union v. Sherman Lumber Co., No. 00-41, 2001 WL 1719233, at *8 (Me. Super. June
28, 2001). Although Count Seven does not set forth a separate cause of action, it does
put the Defendants on notice that the Plaintiffs will be pursuing Paychex under an
alter ego theory. I treat Count Seven as an alternate claim for relief against Paychex.
Whether to pierce the veil requires a fact-intensive, case-by-case analysis.
Crane v. Green & Freedman Baking Co., 134 F.3d 17, 21 (1st Cir. 1998) (“The legal
standard for when it is proper to pierce the corporate veil is notably imprecise and
fact-intensive.”). For me to consider Advantage and Paychex as one entity, the
Associates must show (i) an abuse or misuse of the corporate form and (ii) an unjust
or inequitable result would occur if I recognize the corporate separateness of
Advantage and Paychex. GMAC Comm. Mortg. Corp., 84 F. Supp. 2d at 140. At this
early stage, the Associates have plead sufficient facts to support an alter ego theory.9
The motion to dismiss Count Seven will be denied.
III.

Leave to File an Amended Complaint
The Associates, perhaps seeing the vulnerability of their Complaint, seek leave

to amend. Pls.’ Opp’n 2, 18, 19. As a general rule, a court “should freely give leave [to
amend] when justice so requires.” Fed. R. Civ. P. 15(a)(2). Here, the Plaintiffs filed

Here, the alleged abuse is that Advantage has been reduced to a “shell” corporation. Paychex
controls Advantage’s management, accounting, and sales teams. Compl. ¶¶ 1-4, 36-44. And Paychex
is using its control of Advantage to promote Paychex products, degrade the value of the Associates’
products, and generally reduce competition with Advantage and the Associates. Compl. ¶ 38.
Meanwhile, Advantage’s clients are being transitioned to the Paychex platform, and Advantage’s
resources have been redirected to Paychex. Compl. ¶ 38. The Complaint concludes that this cumulative
reorientation of Advantage’s operations constitutes a breach of Advantage’s obligations to the
Associates, at the hands of Paychex. Compl. ¶ 101.
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their opposition and request to amend on October 18, 2016, before the November 15,
2016, deadline for amendment. See Scheduling Order 2 (ECF No. 28). The Plaintiffs
are hereby granted leave to amend.
CONCLUSION
For the reasons stated above, the Court GRANTS IN PART and DENIES IN
PART the motion to dismiss as follows:


On Count Four, the Court DENIES the motion to dismiss.



On Count Five, the Court DENIES the motion to dismiss.



On Count Six, the Court GRANTS the motion to dismiss.



On Count Seven, the Court DENIES the motion to dismiss.



On Count Eight, the Court GRANTS the motion to dismiss.



On Count Nine, the Court GRANTS the motion to dismiss.

The Court DENIES the motion to strike.

SO ORDERED.
/s/ Nancy Torresen
United States Chief District Judge
Dated this 28th day of February, 2017.

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