Bradbury v. Network Enterprises, Inc. et al

Filing 17

MEMORANDUM AND ORDER - IT IS HEREBY ORDERED that the defendants motion to dismiss [Doc. # 8 ] is granted as to Counts III, IV and V of the complaint. IT IS FURTHER ORDERED that the defendants motion to dismiss is denied as to Count II of the complaint. Signed by District Judge Carol E. Jackson on 2/13/13. (KJS)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
RICKY C.L. BRADBURY,
Plaintiff,
vs.
NETWORK ENTERPRISES, INC., et al.,
Defendants.

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Case No. 4:12-CV-575 (CEJ)

MEMORANDUM AND ORDER
This matter is before the Court on defendants’ motion to dismiss Counts II, III,
IV, and V of the complaint pursuant to Fed.R.Civ.P. 12(b)(6). Plaintiff opposes the
motion, and the issues are fully briefed.
I. Background
In 2010, plaintiff Ricky Bradbury was hired as Vice President of defendant
Network Enterprises, Inc. (formerly, Network Piping).1 The employment agreement
between Network and plaintiff contained a “Shadow Stock” provision, stating that
plaintiff would receive 5% of Network’s value in the event of the sale of the company.
The contract was signed by plaintiff and defendant William Finnegan, the sole
shareholder of Network. In 2011, Network sold substantially all of its assets for six
million dollars. Plaintiff alleges that he did not receive 5% of this purchase price
($300,000), as required by the contract. Plaintiff asserts a claim of breach of contract
against Network Enterprises (Count I), and claims of breach of contract (Count II),
tortious interference (Count III), and unjust enrichment (Count IV) against Finnegan.

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Network Piping changed its name to Network Enterprises in 2011.

Finally, plaintiff alleges that both defendants violated the Missouri Fraudulent Transfer
Act (Count V).
II. Legal Standard
The purpose of a motion to dismiss under Rule 12(b)(6) of the Federal Rules of
Civil Procedure is to test the legal sufficiency of the complaint. The factual allegations
of a complaint are assumed true and construed in favor of the plaintiff, “even if it
strikes a savvy judge that actual proof of those facts is improbable.” Bell Atlantic Corp.
v. Twombly, 550 U.S. 544, 556 (2007), citing Swierkiewicz v. Sorema N.A., 534
U.S.506, 508 n.1 (2002); Neitzke v. Williams, 490 U.S. 319, 327 (1989) (“Rule
12(b)(6) does not countenance . . . dismissals based on a judge’s disbelief of a
complaint’s factual allegations”); Scheuer v. Rhodes, 416 U.S. 232, 236 (1974) (a wellpleaded complaint may proceed even if it appears “that a recovery is very remote and
unlikely”). The issue is not whether the plaintiff will ultimately prevail, but whether the
plaintiff is entitled to present evidence in support of his claim. Id. A viable complaint
must include “enough facts to state a claim to relief that is plausible on its face.” Bell
Atlantic Corp., 550 U.S. at 570; see also id. at 562-63 (“no set of facts” language in
Conley v. Gibson, 355 U.S. 41, 45-46 (1957), “has earned its retirement.”). “Factual
allegations must be enough to raise a right to relief above the speculative level.” Id.
at 555.
III. Choice of Law
Before discussing the legal sufficiency of the complaint, the Court must
determine which state’s law should apply. A federal court sitting in diversity applies
the choice-of-law approach of the forum state. E.g., Northwest Airlines, Inc. v. Astraea
Aviation Servs., Inc., 111 F.3d 1386, 1393 (8th Cir. 1997). Missouri, the forum state,

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recognizes and respects contractual choice-of-law provisions, Am. Inst. of Mktg. Sys.,
Inc.v. Brooks, 469 S.W.2d 932, 935 (Mo. Ct. App. 1971), such as the one in this case.
That provision states: “This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Rhode Island...” Pl. Ex. A [Doc.
#4-1]. This clause reaches plaintiff’s claims sounding in contract and tort, because the
tort claims are all “closely related to the interpretation of the contract.” Nw. Airlines,
111 F.3d at 1392 (applying contractual choice-of-law provision to claims of negligent
performance, misrepresentation, and unjust enrichment).
Although there is no mention of the choice-of-law clause or Rhode Island law in
the complaint, plaintiff cites to Rhode Island cases in his brief without contesting their
application. Apparently plaintiff has abandoned his position that “Missouri Law applies
to and controls the events and causes of action set forth in this Petition.” Compl. ¶ 4
[Doc. #4]. The Court finds that Rhode Island law applies in this case.
IV. Discussion
A. Breach of Contract
Defendants argue that Finnegan was not a party to the contract, and therefore
cannot be sued for its breach. Plaintiff argues that Finnegan signed the contract in his
individual capacity, not his representative capacity, and therefore may be personally
liable for a breach. Plaintiff also suggests that the Court pierce the corporate veil that
shields Finnegan from liability on Network’s contracts.
1. Personal Liability of a Corporate Agent
Plaintiff’s assertion that Finnegan is personally liable for the breach of the
employment agreement is based on Finnegan’s signature on the contract. According
to the complaint, the contract “does not disclose any principal/agent relationship

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between Defendants Network Piping and Finnegan and Defendant Finnegan did not
indicate that he was executing the Employment Agreement as an officer or director of
Defendant Network Piping.” Compl. ¶ 18 [Doc. #4]. Finnegan’s signature appears
without qualification or a clause specifying that the contract is signed in a
representative, not an individual, capacity.

Plaintiff states that he relied upon

Finnegan’s personal liability when signing the contract.
It is a well established principle of agency law that “[w]hile an agent working for
a known principal is usually not personally liable for acts done within the scope of his
authority, he may either expressly or impliedly incur such personal liability. If the
agent has bound himself personally, he will be bound accordingly. His liability in such
a case is not bound on his agency but upon his contractual obligations.” C. C. Plumb
Mixes, Inc. v. Stone, 272 A.2d 152, 154 (R.I. 1971). The manner in which the agent
signed the contract is important, but not dispositive, in determining the agent’s liability
on a contract. See R.I. Res. Recovery Corp. v. Van Liew Trust Co., 2011 R.I. Super.
LEXIS 70, at *17-19 (R.I. 2011). Not only did Finnegan not specify that he signed in
a representative capacity, but there is no explanation of Finnegan’s identity or role as
an agent anywhere in the agreement. Plaintiff has alleged sufficient ambiguity as to
whether Finnegan was a party to the contract for the theory of personal liability to
survive the 12(b)(6) standard of plausibility. “Determining whether an agent has
bound himself personally is a question of fact,” and should be left for summary
judgment. Pacheco v. Mass. Cas. Ins. Co., 610 A.2d 111, 113 (R.I. 1992).
2. Piercing the Corporate Veil
Next, plaintiff argues that the Court should hold Finnegan personally liable for
Network’s contracts by piercing the corporate veil. Piercing the corporate veil is a

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drastic measure by which the corporate form is disregarded, and constituents of the
corporation are no longer shielded by limited liability. “[R]espect for the legitimacy of
the corporate form and its protective shield of limited liability usually dissuades courts
from using their remedial swords” to pierce the corporate veil unless there is “extreme
provocation to do so.” Doe v. Gelineau, 732 A.2d 43, 44 (R.I. 1986). Courts are
especially hesitant to pierce the veil in suits based in contract rather than tort, since
the party suing on a contract is more likely to have considered, ex ante, the
undercapitalization and shoddy corporate structure of the other party. See Miller v.
Dixon Indus. Corp., 513 A.2d 597, 604 (R.I. 1986) (explaining that courts are less
likely to ignore the corporate form in cases of contract rather than tort).
Rhode Island courts are most likely to pierce the veil when the corporation is a
mere “alter ego” of the corporate constituent, and when the corporation is used as a
tool to accomplish fraud. E.g., U.S. v. Kayser-Roth Corp., Inc., 103 F.Supp.2d 74, 84
(D.R.I. 2000); Stanley Weiss Assocs., LLC v. Energy Mgmt Inc., No. Civ.A. 02-1794,
2004 WL 877540, at *6 (Sup. Ct. R.I. Apr. 7, 2004). A corporation will be viewed as
an “alter ego” when there is “a unity of interest and ownership that the separate
personalities of the corporation and the individual no longer exist.” Id. (quoting
Transamerica Cash Reserve, Inc. v. Dixie Power & Water, Inc., 789 P.2d 24, 26 (Utah
1990)). Undercapitalization and disregard for corporate formalities, such as conducting
shareholder and director meetings or the segregation of corporate and private assets,
are frequent hallmarks of the alter ego corporation. Kayser-Roth, 103 F.Supp.2d at
84. Additional equitable grounds that support veil piercing include the use of the
corporate form to “defeat public convenience, justify wrong, protect fraud or defend

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crime.” Id. (quoting R & B Elec. Co v. Amco Const. Co., 471 A.2d 1351, 1354 (R.I.
1984)).
Defendants argue that plaintiff recites the elements of veil piercing, couching
legal conclusions as factual allegations.

Certainly, “bare-boned allegations of

undercapitalization and common control and/or management, standing alone, do not
rise to the level of plausibility required to survive a 12(b)(6) motion.” Wrist Worldwide
Trading GMBH v. MV Auto Banner, No. 10-2326 (ES)(CLW), 2011 WL 5414307, at *5
(D.N.J. Nov. 4, 2011). See also Essex Ins. Co. v. Raymond Miles, No. 10-3598, 2010
WL 5069871, at * 3 (E.D. Pa. Dec. 3, 2010) (granting a motion to dismiss a complaint
that “is merely a recitation of the legal elements required to pierce the corporate
veil.”).
Plaintiff has alleged that Finnegan is the sole shareholder of Network, and as
such, controls the corporation. Defendants are correct in pointing out that plaintiff has
not alluded to the complete disregard of corporate formalities that so often encourages
courts to pierce the veil. Plaintiff does not allege that Finnegan used corporate funds
for his personal expenses, or that Network was undercapitalized. However, plaintiff
does allege that Finnegan sold the assets of Network and pocketed the proceeds,
leaving plaintiff to sue the empty corporate shell. Whether this alleged manipulation
of the corporate form and the surrounding circumstances rise to the level of fraud
necessary to pierce the veil remains to be seen at a later stage of litigation. For now,
the plaintiff has alleged sufficient facts to survive a motion to dismiss. Accordingly,
defendants’ motion to dismiss Count II will be denied.
B. Tortious Interference with the Employment Agreement

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Under Rhode Island law, “to prevail on a claim of tortious interference with
contractual relations, a claimant must show ‘(1) the existence of a contract; (2) the
alleged wrongdoer’s knowledge of the contract; (3) his [or her] intentional
interference; and (4) damages resulting therefrom.’” Ira Green, Inc. v. Military Sales
& Serv. Co., No. 10-207-M, 2012 WL 2178984, at *1 (D.R.I. June 13, 2012) (quoting
Tidewater Realty, LLC. v. Rhode Island, 942 A.2d 986, 993 (R.I. 2008)). Under the
“stranger doctrine” followed by Rhode Island courts, a party to a contract may not be
liable for tortious interference with that contract. URI Cogeneration Partners, LP v. Bd.
of Governors for Higher Educ., 915 F.Supp. 1267, 1289 (D.R.I. 1996) (“...suits brought
under Rhode Island law for tortious interference with contract can only be maintained
against non-contractual third parties.”). See also Shire Corp., Inc. v. R.I. Dep’t of
Transp., No. PB 09-5686, 2012 R.I. Super. LEXIS 32, at *91 (R.I. Super. Ct. Mar. 2,
2012).

Without the stranger doctrine, all breaches of contracts also would be

actionable as torts. See, e.g., Holloway v. Skinner, 898 S.W.2d 793, 795 (TX 1995)
(“Were we to recognize the tortious interference claim when this identity of interest
exists, any party who breaches a contract could be said to have induced his own
breach and would therefore be liable for tortious interference.”); Shire, 2012 R.I.
Super. LEXIS 32, at *92-93 (“In most cases, interference with a contract to which the
interferor is or is essentially a party really amounts to breach of contract, and a claim
for tortious interference is not actionable.”).
All strangers to a contract must be non-parties, but not all non-parties are
strangers.2 For example, third party beneficiaries or others with legitimate interest in
the contract are neither parties nor strangers, and cannot be sued for tortious
2

For this reason, the defendants’ position that Finnegan was neither a party nor a
stranger to the contract is not inherently contradictory, as plaintiff argues.

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interference. See Shire, 2012 R.I. Super. LEXIS 32, at *95-96 (holding that the state
agency signing the contract, the state agency involved in awarding the contract, and
individual employees of those agencies were “sufficiently interwoven such that [they]
are not third persons or outside parties.”).
An agent of a contracting party is not a third party and stranger to the contract,
unless the agent is acting outside the scope of his authority, acting maliciously, or
acting in his own interests. Id. at *95; Ed Peters Jewelry Co., Inc. v. C & J Jewelry
Co., Inc., 124 F.3d 252, 275 (1st Cir. 1997). Rhode Island law recognizes a tortious
interference claim against the agent of the contracting corporation when the agent did
not act in the best interest of the corporation, or was acting “solely to advance his own
personal interests.” Ed Peters Jewelry, 124 F.3d at 275. In order for the personal
interest exception to apply, there must be enough distinction and distance between the
agent and the contracting party so that they may act in opposition to one another.
See Robertson Stephens, Inc. v. Chubb Corp., 473 F.Supp.2d 265, 275-76 (D.R.I.
2007) (denying a motion to dismiss because complaint adequately alleged that
defendant, agent of the contracting party, acted in its own personal interests rather
than the interest of the contracting party). See also Jolicoeur Furniture Co., Inc. v.
Baldelli, 653 A.2d 740, 752 (R.I. 1995) (holding that separate branches of government
are “independent enough to act in opposition to one another in any number of ways”
and therefore should be considered separate parties capable of interfering with each
other’s contracts).
Plaintiff argues that Finnegan falls under the “personal interest” exception to the
stranger doctrine, because Finnegan personally benefitted when he received the
$300,000 allegedly due to Bradbury, along with the rest of the proceeds from the sale

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of Network’s assets. However, Finnegan was the sole shareholder and controlled
Network; he was so closely aligned with the corporation that it is impossible to say that
his personal interests diverged from the interests of Network. See Schoellkoff v.
Pledger, 778 S.W.2d 897, 903 (Ct. App. Tx. 1989) (holding that, as a matter of law,
“individuals who own, control, and dominate a closely held corporation” cannot be
liable for the tortious interference with corporate contracts because they possessed a
“unity of interest” with the corporation and were “so closely aligned as to be one
entity”) (internal quotations omitted).

Therefore, defendants’ motion to dismiss

plaintiff’s claim of tortious interference (Count III) will be granted.
C. Unjust Enrichment
Defendants move to dismiss the claim of unjust enrichment on two grounds.
First, defendants argue that because an express contract exists, a claim of unjust
enrichment cannot stand. Next, defendants contend that plaintiff failed to sufficiently
plead the elements of unjust enrichment.
“An unjust enrichment claim cannot be maintained where a contract governs the
relationship between the parties.” Roberts v. Fleet Bank (R.I.), 342 F.3d 260, 270 (3d.
Cir. 2003) (applying Rhode Island law and citing Marshall Contractors v. Brown Univ.,
692 A.2d 665, 669 n.3 (R.I. 1997)). The existence of an express contract is not in
dispute, and whether plaintiff is owed $300,000 will be determined according to the
terms of that contract. However, Finnegan’s involvement and liability on that contract
is disputed. Because Finnegan may or may not be a party to the contract, breach of
contract and unjust enrichment claims may be maintained in the alternative.

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KT.TV, LLC v. Entest Biomedical, Inc., No. 3:11CV244, 2011 WL 5374515, at * 6 (M.D.

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Pa. Nov. 7, 2011) (explaining that, when the express contract is in dispute, a plaintiff
may plead breach of contract and unjust enrichment in the alternative).
However, plaintiff does not adequately allege the elements of this claim. The
three elements comprising a prima facie claim of unjust enrichment are as follows: “(1)
a benefit must be conferred upon the defendant by the plaintiff, (2) there must be
appreciation by the defendant of such benefit, and (3) there must be an acceptance
of such benefit in such circumstances that it would be inequitable for a defendant to
retain the benefit without paying the value thereof.”

Narragansett Elec. Co. v.

Carbone, 898 A.2d 87, 99 (R.I. 2006). Plaintiff alleges that Finnegan received the
benefit of an extra $300,000 in sale proceeds from the buyers of Network’s assets, and
that it would be unjust to allow Finnegan to retain these funds because they are the
product of Network’s breach of contract. Plaintiff does not allege that he conferred any
benefit upon Finnegan for which equity requires restitution or compensation. The
$300,000 Finnegan received was from Network or its buyers, not from plaintiff. The
pleadings attempt to squeeze the facts into the shape of an unjust enrichment claim,
in a backdoor attempt to hold Finnegan liable on the contract without piercing the
corporate veil. The facts of this case, as pleaded, simply do not fit within the law of
unjust enrichment. Accordingly, plaintiff’s claim of unjust enrichment (Count IV) will
be dismissed.
D. Missouri Fraudulent Transfer Act
As discussed above, Rhode Island law applies to all claims closely related to the
breach of contract claim. Therefore, plaintiff’s claim based on the Missouri Fraudulent
Transfer Act (Count V) will be dismissed.
E. Request to Amend Complaint

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In the memorandum in opposition to the motion to dismiss, plaintiff asks that
he be granted leave to file an amended complaint.

Plaintiff’s request must be

submitted in motion form with a copy of the proposed amended complaint attached.
The Court will not otherwise consider his request.
Accordingly,
IT IS HEREBY ORDERED that the defendants’ motion to dismiss [Doc. #8] is
granted as to Counts III, IV and V of the complaint.
IT IS FURTHER ORDERED that the defendants’ motion to dismiss is denied
as to Count II of the complaint.

___________________________
CAROL E. JACKSON
UNITED STATES DISTRICT JUDGE

Dated this 13th day of February, 2013.

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