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Silveira v. Start, Inc.

Superior Court of Rhode Island, Providence

March 18, 2019

MICHAEL SILVEIRA and CHARLOTTE JASON, Plaintiffs,
v.
START, INC. d/b/a START TRAFFIC and BARNABY START, Defendants.

          For Plaintiff: George Barsom, Esq.

          For Defendant: Charles D. Blackman, Esq.

          DECISION

          STERN, J.

         The 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).

         I

         Facts and Travel

         The 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.

         Beginning 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.

         On 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.

         According 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.

         Following 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.

         According 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.

         As 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.

         II

         Standard of Review

         "[T]he '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." Id.

         Rule 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[1] 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)).

         III

         Analysis

         First 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.

         Turning now to the individual counts of the Complaint, the Defendants move to dismiss all thirteen counts.[2] 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 15(a).[3]

         A

         Count I: Breach of Contract

         Barnaby 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.

         "It 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).

         Here, 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)[4] 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.

         The 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 denied.

         B

         Count II: Promissory Estoppel

         Barnaby 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.

         "'A 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 626).

         In the 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. ...


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