Plaintiff: George Barsom, Esq.
Defendant: Charles D. Blackman, Esq.
instant matter comes before the Court on Defendants Start,
Inc. d/b/a Start Traffic (the Corporation), and Barnaby
Start's (Barnaby) (collectively, Defendants) Motions to
Dismiss. Defendants move to dismiss Plaintiffs Michael
Silveira (Silveira) and Charlotte Jason's (Jason)
(collectively, Plaintiffs) Verified Complaint for failure to
state a claim upon which relief can be granted. Jurisdiction
is pursuant to Super. R. Civ. P. 12(b)(6).
instant action was brought by the Plaintiffs on August 22,
2018 as shareholders and former officers of the Corporation.
Verified Compl. (Compl.) ¶ 1. In 2014, Barnaby and
Silveira agreed to create a corporation in the United States,
and included Jason as an equity partner. Compl. ¶¶
9-12. According to Plaintiffs, the parties agreed that
Plaintiffs would each be granted a ten percent share and
Barnaby would have an eighty percent share. Compl. ¶ 14.
The parties discussed the Plaintiffs receiving "sweat
equity" before the Corporation became profitable, and
Plaintiffs allege Barnaby represented that he would provide
$500, 000 in funding for the Corporation. Compl.
¶¶ 13, 15. Plaintiffs assert they believed they
would be paid salaries in lieu of dividends, as well as a
$750 per week stipend and housing accommodations. Compl.
¶¶ 18, 20. On December 9, 2014, the parties signed
a Shareholder Agreement. Def.'s Ex. A. The Corporation
began operating on December 14, 2014. Compl. ¶ 21.
Barnaby provided $50, 000 in secured loans with a promissory
note from the accounts of his business located in the United
Kingdom as start-up funds for the Corporation. Plaintiffs
allege the Corporation became self-sufficient in March of
2016, and that as of September 1, 2017, the Corporation
surpassed one million dollars in annual sales. Compl.
¶¶ 42, 43.
in January, and again in May and September of 2017,
Plaintiffs claim they discussed redistributing the equity
with Barnaby. Compl. ¶ 45. On October 29, 2017,
Plaintiffs and Barnaby met to discuss redistributing the
equity, and Plaintiffs informed Barnaby they did not intend
to continue to work for the Corporation unless the equity was
redistributed. Compl. ¶¶ 46, 47. The parties did
not reach a finalized, written agreement at that time, and at
a subsequent meeting on October 31, 2017, again did not reach
a finalized, written agreement. Compl. ¶¶ 48-51. On
November 5, 2017, Barnaby and the Plaintiffs met again.
According to Plaintiffs, Barnaby indicated he would agree to
equity redistribution in exchange for unrestricted access to
the Corporation's records and finances. Compl. ¶ 62.
Barnaby subsequently granted access to said records and
finances to Barnaby's private accountant, Timothy Gordon
(Gordon). Compl. ¶ 64.
January 5, 2018, Barnaby noticed a shareholders meeting to
take place on January 22, 2018. Compl. ¶ 74. At the
meeting, Plaintiffs allege they were accused of
"irregular and negligent management," and
"outright embezzlement and fraud." Compl. ¶
78. Plaintiffs also allege that at the meeting, Gordon
claimed the Corporation had a $140, 000 deficit, and Barnaby
and his attorney, Miriam Ross, discussed the possibility of a
buyout. Compl. ¶¶ 79, 81, 82. Plaintiffs claim they
left the meeting early, and that when they arrived at their
house-which also served as the Corporation's
headquarters-there was a security team on the premises
removing items related to the Corporation at Barnaby's
request. Compl. ¶¶ 87-90. Later that day,
Plaintiffs claim they were served with an eviction notice by
Barnaby. Compl. ¶ 94.
to Plaintiffs, on February 13, 2018, Plaintiffs were given
letters stating, in part,
"[t]he results of this investigation show that your
conduct and performance disregarded the [Corporation's]
interest and resulted in substantial financial loss to the
[Corporation]. Further, it also appears you used [the
Corporation's] funds and resources under your care and
charge by virtue of your position for personal benefit and
use. Therefore, your employment with the [Corporation] is
terminated effective immediately." Compl. ¶ 96.
this letter, Plaintiffs assert that Barnaby began eviction
proceedings against them. Compl. ¶ 98. Plaintiffs claim
they came to an agreement with Barnaby in which Plaintiffs
agreed to voluntarily vacate the house if Barnaby paid them
$850, but that Barnaby subsequently breached the terms of
said agreement. On March 7, 2018, Plaintiffs sent a letter to
Defendants demanding that they preserve evidence related to
this impending matter. Compl. ¶¶ 99-102.
to Plaintiffs, since the above-detailed events, Barnaby has
hired a new employee, sold the property previously used as
housing accommodations for the Plaintiffs and as the offices
for the Corporation, and has been improperly transferring
corporate assets. Plaintiffs assert they have been requesting
to inspect the Corporation's books and records pursuant
to G.L. 1956 § 7-1.2-1502, but that the Corporation has
only provided "superficial summaries of accounts."
Plaintiffs allege they made repeated attempts to review and
copy the Corporation's books and records, and all
attempts were rebuffed. Compl. ¶¶ 123-135.
such, Plaintiffs asserted thirteen claims in their Complaint
against Defendants: (1) Breach of Contract; (2) Promissory
Estoppel; (3) Unjust Enrichment; (4) Breach of Fiduciary
Duty; (5) Fraud and Deceit; (6) Conversion; (7) Waste, Misuse
and Misappropriation of Corporate Assets, and Ultra Vires
Acts; (8) Negligent Misrepresentation; (9) Wrongful
Discharge; (10) Defamation; (11) Violation of R.I.G.L. §
7-1.2-1502; (12) Breach of the Implied Covenant of Good Faith
and Fair Dealing; and, (13) Dissolution.
'sole function of a motion to dismiss is to test the
sufficiency of the complaint.'" Multi-State
Restoration, Inc. v. DWS Properties, LLC, 61 A.3d 414,
416 (R.I. 2013). "'When ruling on a Rule 12(b)(6)
motion [to dismiss], the trial justice must look no further
than the complaint, assume that all allegations in the
complaint are true, and resolve any doubts in a
plaintiff's favor.'" Laurence v.
Sollitto, 788 A.2d 455, 456 (R.I. 2002) (internal
quotations omitted) (quoting Rhode Island Affiliate,
ACLU, Inc. v. Bernasconi, 557 A.2d 1232, 1232 (R.I.
1989)). "[A] motion to dismiss should be granted only
'when it is clear beyond a reasonable doubt that the
plaintiff would not be entitled to relief from the defendant
under any set of facts that could be proven in support of the
plaintiff's claim.'" Rein v. ESS Group,
Inc., 184 A.3d 695, 702 (R.I. 2018) (quoting Goddard
v. APG Security-RI, LLC, 134 A.3d 173, 175 (R.I. 2016)).
"The plaintiff is not required to plead the ultimate
facts that must be proven in order to succeed on the
complaint. The plaintiff is also not obligated to set out the
precise legal theory upon which his or her claim is
based." Haley v. Town of Lincoln, 611 A.2d 845,
848 (R.I. 1992). Instead, "[a]ll that is required is
that the complaint give the opposing party fair and adequate
notice of the type of claim being asserted."
12(b)(6) has a narrow and specific purpose: "'to
test the sufficiency of the complaint.'"
Multi-State Restoration, Inc., 61 A.3d at 416
(quoting Laurence, 788 A.2d at 456).
"'[W]hen the motion justice receives evidentiary
matters outside the complaint and does not expressly exclude
them in passing on the motion, then Rule 12(b)(6)
specifically requires the motion to be considered as one for
summary judgment.'" Multi-State Restoration,
Inc., 61 A.3d at 416 (citing Martin v. Howard,
784 A.2d 291, 298 (R.I. 2001)). Recently, the Supreme Court
has adopted the First Circuit Court of Appeals'
exception to this rule that "if 'a complaint's
factual allegations are expressly linked to-and admittedly
dependent upon-a document (the authenticity of which is not
challenged), [then] 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).'"
Mokwenyei v. Rhode Island Hospital, 198 A.3d 17, 22
(R.I. 2018) (quoting Jorge v. Rumsfeld, 404 F.3d
556, 559 (1st Cir. 2005)).
and foremost, despite not being included in Plaintiffs'
complaint, Defendants ask this Court to consider documents
outside the four corners of the complaint: the Shareholder
Agreement, a Promissory Note, and an email dated October 25,
2017. Plaintiffs included in their supporting memorandum and
ask that this Court consider a letter demanding inspection of
the Corporation's records, and the letter they received
in response. Plaintiffs include in their complaint a number
of counts which are expressly linked to both the Shareholder
Agreement, and thus this document "effectively merges
into the pleadings" and can be reviewed by this Court.
See Mokwenyei, 198 A.3d at 22. The other documents
that both Plaintiffs and Defendants request this Court
consider, however, will not be considered in this motion to
dismiss. The allegations are not "dependent upon"
these documents, and the Court's consideration of said
documents would be beyond the narrow scope of a motion to
dismiss. See id. at 23; see also Multi-State
Restoration, Inc., 61 A.3d at 418.
now to the individual counts of the Complaint, the Defendants
move to dismiss all thirteen counts. In the event that any of the
counts in the Complaint are insufficient and the Court grants
the Defendants' motion, Plaintiffs ask that this Court
grant leave to amend the Complaint pursuant to Rule
I: Breach of Contract
asserts that Plaintiffs' breach of contract claim (Count
I) fails to state a claim for which relief can be granted for
the following reasons: (1) the Shareholder Agreement does not
mandate redistribution of equity, and (2) the alleged
agreement the parties entered into on October 29, 2017 was
not valid and cannot be enforced. Plaintiffs contend that the
Shareholder Agreement did provided for transfer of shares
between shareholders, and that the October 29, 2017 agreement
was both valid and enforceable.
is well established that a valid contract requires
'competent parties, subject matter, a legal
consideration, mutuality of agreement, and mutuality of
obligation.'" DeAngelis v. DeAngelis, 923
A.2d 1274, 1279 (R.I. 2007) (quoting Rhode Island Five v.
Med. Assocs. of Bristol Cty., Inc., 668 A.2d 1250, 1253
(R.I. 1996)). Sufficient, legal consideration exists when
"something is bargained for . . . [and] 'if it is
sought by the promisor in exchange for his promise and is
given by the promisee in exchange for that
promise.'" DeAngelis, 923 A.2d at 1279
(quoting Filippi v. Filippi, 818 A.2d 608, 624 (R.I.
2003)). Consideration may consist of "either a benefit
to the party promising or a prejudice or trouble to the party
to whom the promise is made." Id. In order to
prevail on their claim for breach of contract, Plaintiffs
"must not only prove both the existence and breach of a
contract, [they] must also prove that [Barnaby's] breach
thereof caused [them] damages." Petrarca v. Fid.
& Cas. Ins. Co., 884 A.2d 406, 410 (R.I. 2005).
Plaintiffs have alleged that the October 29, 2017 oral
agreement (October Agreement) was a valid and enforceable
contract, and that Barnaby's breach of the October
Agreement caused them damages. Plaintiffs first allege the
October Agreement is valid because the Shareholder Agreement
provides that "[s]hareholders may, without first
offering such Shares for sale to the Company, transfer all or
a portion of their Shares to other Shareholders on a Pro Rata
basis . . . upon such terms and conditions as such
Shareholders shall mutually agree." Shareholder
Agreement § 2.7, at 4 (emphasis added). Additionally,
Plaintiffs allege the October Agreement is valid and
enforceable because "[a]fter several hours of
negotiations, the parties agreed to the following
terms," (Compl. ¶ 48) that "Plaintiffs reasonably
interpreted Barnaby's silence as a representation that he
intended to abide by [the October Agreement, ]" (Compl.
¶ 72) and Plaintiffs "have suffered substantial
harm including, but not limited to, lost profits, lost equity
in Start Traffic and lost benefits as contemplated by the
[October Agreement]." (Compl. ¶ 145). By the
express language of the Complaint, the Plaintiffs have
sufficiently alleged a claim for breach of contract needed to
withstand Barnaby's motion to dismiss. See
Petrarca, 884 A.2d at 410.
Court's duty when considering a motion to dismiss is
solely "'to test the sufficiency of the
complaint.'" Audette v. Poulin, 127 A.3d
908, 911 (R.I. 2015) (quoting Ho-Rath v. R.I.
Hospital, 115 A.3d 938, 942 (R.I. 2015)). Rule 8(a)
requires only that a complaint provide "[a] short and
plain statement of the claim showing that the pleader is
entitled to relief." Super. R. Civ. P. 8(a). Taking the
Plaintiffs' allegations as true and resolving any doubts
in their favor, the motion as it relates to Count I is
II: Promissory Estoppel
next asserts that Count II fails to state a claim for which
relief can be granted because Plaintiffs fail to establish
they changed their position or relied to their detriment
based on the October Agreement. Plaintiffs claim that
Barnaby's repeated representations and failure to
repudiate the terms of the October Agreement caused
Plaintiffs to rely on said representations and in turn remain
in their professional positions with the Corporation,
believing the Corporation's equity would be redistributed
in their favor.
promise which the promisor should reasonably expect to induce
action or forbearance of a definite and substantial character
on the part of the promisee and which does induce such action
or forbearance is binding if injustice can be avoided only by
enforcement of its promise.'" E. Providence
Credit Union v. Geremia, 103 R.I. 597, 601, 239 A.2d
725, 727 (1968) (quoting Restatement (First) of
Contracts § 90 (1932)). The Rhode Island
Supreme Court requires the following to show promissory
estoppel: "'1. A clear and unambiguous promise; 2.
Reasonable and justifiable reliance upon the promise; and 3.
Detriment to the promisee, caused by his or her reliance on
the promise.'" Cote v. Aiello, 148 A.3d
537, 547 (R.I. 2016) (quoting Filippi, 818 A.2d at
Complaint, Plaintiffs allege Barnaby agreed to the terms of
the October Agreement, that Plaintiffs reasonably relied on
that agreement or promise, as well as Barnaby's alleged
subsequent representations, and that such reliance was to
Plaintiffs' detriment. Plaintiffs assert they
"continued to prudently manage the Corporation and to
faithfully fulfill their fiduciary duties," and that
they had made it clear they would not do so if Barnaby did
not fulfill his promises in the October Agreement. Compl.
¶¶ 47, 73. ...