678
Chapter 43
Law for Small
Businesses
Case 43.1
956 So.2d 76, 2006-878
Tynes E. MIXON, III, M.D.
v.
IBERIA SURGICAL, L.L.C., et al.
No. 2006-878.
April 18, 2007.
COOKS, Judge.
**3STATEMENT OF THE CASE
Tynes E. Mixon, III, M.D. filed a petition for damages asserting he was wrongfully terminated from his membership in Iberia
Surgical, L.L.C. (Iberia Surgical) and did not receive adequate compensation for his interest in the business. Dr. Mixon later
STATEMENT OF THE FACTS
Iberia Surgical was formed, in August 1998, by a group of physicians practicing in Iberia Parish for the purpose of establishing an
ambulatory, out-patient surgery center. Each of the eleven physician members contributed $5000 and obtained a 9.09% interest in
CHAPTER 43: LAW FOR SMALL BUSINESSES 679
the business. The members executed a written Operating Agreement which provided a member may be terminated “without cause”
upon unanimous vote of the membership. The contract also contained a “Buy–Out” provision in case of termination or withdrawal
federal authorities. Soon, Dr. Mixon began to realize his behavior was not well received among the partners and he may be
terminated from membership in Iberia Surgical by a vote of the organization. In fact, a proposal was circulated to amend the by–
laws of the Operating Agreement to require a majority vote to terminate a member instead of a unanimous vote. Dr. Mixon
perceived this proposed change to be directed against him. He requested mediation and then filed a petition in district court for
declaratory judgment and injunctive relief to prohibit the members from meeting to discuss the proposed change. His fears were
Additionally, Dr. Mixon asserts Iberia Surgical abused their right to terminate him from membership. He also alleges he was
compensated for his ownership interest at a price far less than fair market value. We find neither the Louisiana Unfair Trade
Practices and Consumer Protection Law or the Louisiana whistleblower statute provide a remedy for Dr. Mixon. Based on our
review of the record, we conclude Dr. Mixon’s release from membership in Iberia Surgical was done for legitimate business
reasons and he was compensated, in accordance with the provisions of the Operating Agreement, which he helped draft. Each of
for unfair or deceptive trade practices. A practice is unfair when it offends established public policy and when the practice is
unethical, oppressive, unscrupulous or substantially injurious. A trade practice is “deceptive” for purposes of LUTPA when it
amounts to fraud, deceit, or misrepresentation. The actions of Iberia Surgical in releasing Dr. Mixon from its membership under the
terms of a contract mutually agreed upon does not amount to fraud, deceit or misrepresentation. Moreover, Dr. Mixon is not a
“consumer or competitor” within the definition of the Act. We find no merit to this argument.
(2) A person aggrieved of a violation of Subsection A or B of this Section shall be entitled to exemplary damages.
[7][8] This statute is part of the Louisiana Medical Assistance Programs Integrity Law adopted in 1997 and was intended to “protect
the fiscal and programmatic integrity of the medical assistance programs from health care providers and other persons who **7
engage in fraud, misrepresentation, abuse or other ill practices, as set forth in this Part, to obtain payment to which there health
care providers or persons are not entitled.” La.R.S. 46:437.2(B). Dr. Mixon does not assert that Iberia Surgical fraudulently sought
Termination Without Cause. A Member may be Terminated Without Cause, *81 by unanimous vote in writing of the remaining
Members of the Company. Such Termination Without Cause shall be treated as though the Member were expelled from the
Company as provided in Section 3.2(e)(iv) above.
However, Dr. Mixon asserts the exercise of this contractual right by Iberia Surgical to terminate his membership was a abuse of
right and violates moral rules, good faith, and elementary fairness. He also contends there was an absence of a serious or
prohibited a State group health insurance plan, from applying a benefit modification to an individual who was previously diagnosed
and treated for cancer. The appellate court stated: “Although an insurer may have the contractual right to cancel a policy, many
courts hold that public policy prevents an insurer from terminating benefits with respect to previously diagnosed and treated
illnesses.”
Id.
at 1020.
We agree with the trial court that Dr. Mixon cannot support a claim for abuse of right. The members of Iberia Surgical, including Dr.
business reason. The provisions of the Operating Agreement are straight-forward and provide a formula for compensation of its
members in the event of a termination or withdrawal. There is no evidence to suggest the terms of the Operating Agreement
violates moral rules, good faith, or *82 elementary fairness. We find no merit to this argument.
Adequate Compensation
[12] Dr. Mixon contends he was not adequately compensated for his interest in Iberia Surgical. The Buy-Out provisions of the
result of the occurrence of a Dissolution Event, shall be determined as follows:
….
(ii) The “Book Value” means the “fair market value” of a Membership Interest computed in accordance with generally accepted
accounting principles, of the net equity of the Company as of the end of the last full taxable year immediately preceding the year in
which the Event giving rise to the purchase and sale of the Membership Rights or Interest occurred. Notwithstanding anything
that number by 9.89 and concluded the fair market value of Iberia Surgical to be $7,971,953. Therefore, Mr. Rainey calculated Dr.
Mixon’s 9.09% equity interest, after discounting for a minority interest, was valued at $483,100.
**11 We agree the terms “Book Value” and “Fair Market Value” are not synonymous and have generally recognized meanings in
*83 accounting in valuation. However, the Operating Agreement, Exhibit E, defines the terms interchangeably and specifically
provides: “ ‘Book Value’ means the ‘fair market value’ of a Membership Interest computed in accordance with generally accepted
FN1. Dr. Rainey’s calculations were based on a comparison of Iberia Surgical in New Iberia with a surgery facility in
Houma. There is no evidence to suggest the two facilities are comparable and the same market factors are applicable,
such as patient base and level of competition in the surrounding area.
Iberia Surgical submitted the testimony of Caroline C. Boudreaux, the certified public accountant hired to determine the amount
Case 43.2
D.Conn.,2010.
Halo Technology Holdings, Inc. v. Cooper
Slip Copy, 2010 WL 1330770 (D.Conn.)
United States District Court,
D. Connecticut.
HALO TECHNOLOGY HOLDINGS, INC. f/k/a Warp Technology Holdings, Inc ., and HTH Emp.,
et al., Plaintiffs,
v.
Randall COOPER, et al., Defendants.
No. 3:07cv489(SRU).
March 31, 2010.
STEFAN R. UNDERHILL, District Judge.
Halo Technology Holdings, Inc. (“Halo”) and HTH Emp., Inc. (“New Empagio”), in their third amended complaint, allege that an
investment bank, venture capitalists, and the management team of New Empagio conspired drive down the price of New Empagio,
a then wholly-owned subsidiary of Halo. The venture capital defendants, Primus Capital Partners, Inc., f/k/a Primas venture
Partners, Inc., Primus Capital Fund V Limited Partnership, Primus Venture Partners V, LLC, Jonathan Dick, Phillip Molner, and
Primus Venture Partners (collectively the “Primus Group”) have moved to dismiss the claims against it. For the following reasons,
the Primus defendants’ motion to dismiss (doc. # 147) is granted in part and denied in part.
I.
Standard of Review
The Primus Group moved to dismiss the complaint both for lack of standing and for failure to state a claim. The party who seeks to
When deciding a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the
CHAPTER 43: LAW FOR SMALL BUSINESSES 683
court must accept the material facts alleged in the complaint as true, draw all reasonable inferences in favor of the plaintiff, and
decide whether the plaintiff has set forth a plausible claim for relief.
Bell Atl. Corp. v. Twombly,
550 U.S. 544, 562-63, 127 S.Ct.
1955, 167 L.Ed.2d 929 (2007);
Iqbal v. Hasty,
—U.S. —-, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009);
Leeds v. Meltz,
85 F.3d 51, 53
A. Procedural History
This case is over two years old, but has yet to proceed beyond the motion to dismiss stage. Judge Alan H. Nevas previously
issued two rulings concerning the amended complaint (doc. # 63) and the second amended complaint (doc. # 107). In the
amended complaint, Halo brought claims against the Primus Group for alleged unfair trade practices in violation of the Connecticut
Unfair Trade Pracites Act (“CUTPA”), and tortious interference with fiduciary relations. The Primus Group moved to dismiss both
Primus Group. To the extent that Halo could have filed a derivative action against the Primus Group, it lost that right when it sold all
of its New Empagio shares to a third party. At oral argument, Halo represented that it could
still
allege facts to support a direct
claim against the Primus Group. Accordingly, the court allowed Halo to amend its complaint.
On October 20, 2008, New Empagio filed a motion to intervene (doc. # 137). The third-amended complaint was filed jointly by New
Empagio and Halo on January 29, 2009 (doc. # 143). I granted New Empagio’s motion to intervene on May 7, 2009 (doc. # 153). In
Halo’s “human resources software and solution sphere.” Garrett is a former employee of New Empagio and served as its Senior
Vice President of Resources and Development. Cooper and Garrett, together with other non-parties formed the Cooper Group.
The Cooper Group managed the operations of New Empagio and owed a fiduciary duty of loyalty, disclosure and prohibition
against self-dealing to Halo and New Empagio.
Primus Partners (“PP”), Primus Capital Fund Ltd. Partnership V, LLC (“PCF”), and Primus Venture Partners V, LLC (“PVP”) are
payment terms would result in an acceleration of the loan.
In the summer of 2006, Halo hired an investment firm to sell New Empagio. Halo anticipated the sales price of New Empagio to not
be less than $30 million. Halo believed that the sale of New Empagio at that price would enable it to pay off Fortress and improve
its own balance sheet. During the same time period, Cooper attended meetings on behalf of Halo to facilitate the sale of New
Empagio. The Cooper Group played a role in negotiating the sale of New Empagio. The Cooper Group was also interested in
1. Halo would turn over confidential information concerning New Empagio for the purposes of due diligence.
2. Information turned over under the agreement would be treated as confidential.
3. Halo shall deal exclusively with C & B.
4. Halo agreed to reimburse the parties, including the Primus defendants, their transaction expenses in the event that Halo
breached the agreement.
Although not obvious from the face of the LOI, the Primus Group was the anticipated purchaser of New Empagio and the third–
party beneficiary of the Halo/Cooper Group relationship.
The Primus Group, through Philip Molner, entered into a non-disclosure agreement with Halo in or around December 2006. Under
of New Empagio. At the end of the exclusivity period, the Cooper Group and the Primus Group told Halo that they had made a
formulaic error and reduced purchase offer to $14.5 million. This offer coincided with the due date of the payment to Fortress and
during a period when Halo could not negotiate with another party. Subsequently, Halo rejected the offer. Halo and New Empagio
defaulted on the payments of $500,000 and $1,000,000. Fortress accelerated the loan and imposed penalties Halo and New
Empagio.
III.
Discussion
Each of the counts brought against the Primus Group allege violations of CUTPA. In the First Count of the complaint, Halo claims
that it was in privity of contract with the Primus Group by virtue of the terms of the non-disclosure agreement and the Primus
Group’s status as an alleged third party beneficiary of the letter of intent. Those contracts gave Primus access to otherwise
confidential information for the sole purpose of evaluating the investment opportunity presented. The Primus Group, Halo claims,
methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.” Conn. Gen.Stat. § 42–
110b(a). A claim for a CUTPA violation can be brought by “any person who suffers any ascertainable loss of money or property,
real or personal, as a result of the use or employment of a method, act or practice prohibited.” Conn. Gen.Stat. § 42-110g(a). In
Connecticut, when determining whether a practice violates CUTPA, the court evaluates “(1) whether the practice, without
necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common
441-42, 955 A.2d 565 (Conn.App.Ct.2008));
see also Boulevard Assocs. v. Sovereign Hotels, Inc.,
72 F.3d 1029, 1038 (2d
Cir.1995).
1.
Breach of the Non-Disclosure Agreement
Halo claims that the Primus Group intentionally breached the terms of the non-disclosure agreement by taking steps and actions
constituting aggravating circumstances so substantial as to be immoral, oppressive, and unscrupulous in violation of CUTPA, and
FN1. In its opposition to the motion to dismiss (doc. # 152), Halo raises for the first time a straight breach of contract claim
against the Primus Group that is independent of any harm to New Empagio. This is a distinct claim from the one raised in
the third amended complaint. In its complaint, Halo claims breach of contract only with respect to the effect the breach
had on New Empagio’s value. If Halo wished to bring a straight breach of the non-disclosure agreement claim against the
Primus Group, it had ample opportunity to do so. Even if Halo had properly pled a straight breach of contract claim, it is
The non-disclosure agreement is governed by the laws of the State of Delaware. Connecticut courts give “effect to an express
choice of law by the parties to a contract provided that it was made in good faith.”
Elgar v. Elgar,
238 Conn. 839, 848, 679 A.2d
937 (1996). Accordingly, I apply Delaware law to the underlying breach of contract claim. With respect to the Halo’s allegation that
the breach of contract violates CUTPA, I apply Connecticut law.
See Country Club Assocs. v. Shaw’s Supermarkets,
643
F.Supp.2d 243, 252 (D.Conn.2009) (“The choice of law provision does not explicitly encompass tort claims.”).
(Conn.App.Ct.1992), misrepresentations in formation,
Web Press Svcs. Corp. v. New London Motors, Inc.,
203 Conn. 342, 525
A.2d 57 (1987), and egregious breach,
Carlyle Johnson Machine Co. v. April,
2000 WL 234311 at *1 (Conn.Super.Ct.2000). In
Carlyle Johnson,
the plaintiff and defendant had an agreement under which the defendant would assist plaintiff in developing an
invention pursuant to the terms of a consulting agreement. The agreement contemplated that the plaintiff would own the patent.
When the plaintiff fell behind in payments to the defendant, the defendant mislead the plaintiff and secretively secured a patent on
provided the Cooper Group with confidential information about New Empagio’s finances, the Cooper Group already had access to
the information because (a) the Cooper Group was the management of New Empagio and (b) that information was subject to
disclosure to the Cooper Group under the terms of the letter of intent.
With respect to the breach claim in general, Halo also fails to allege any direct damages. Even if Halo is correct and the Primus
CHAPTER 43: LAW FOR SMALL BUSINESSES 687
was given access to for due diligence purposes. Also, the complaint alleges that the Cooper Group began undermining Halo’s
efforts to sell New Empagio as early as summer 2006. The non-disclosure agreement did not take effect until December 2006.
At the motion to dismiss stage, the plaintiff must allege facts that form the basis of a plausible claim for relief. Halo alleges no fact
that supports any inference that the Primus Group defendants actually breached the non-disclosure agreement. The complaint
makes no mention of what the Primus Group disclosed. Nor does it state which section of the agreement was violated. Halo does
2.
Breach of the Letter of Intent
Halo also alleges in the First Count that the Primus Group was also bound by the Cooper Group letter of intent as a third-party
beneficiary. The facts of the complaint fail to support the allegation. The letter of intent bound only the Cooper Group and Halo.
3.
Civil Conspiracy and Tortious Interference
In the Second Count, Halo alleges that the Primus Group conspired with the other defendants to interfere in New Empagio’s
business operations and breach the terms of the nondisclosure agreement for the Primus Group’s own benefit. The breach of the
non-disclosure agreement has already been addressed. In Connecticut, a claim of civil conspiracy is insufficient unless based on
1268. “The [elements] of a civil action for conspiracy are: (1) a combination between two or more persons, (2) to do a criminal or an
unlawful act or a lawful act by criminal or unlawful means, (3) an act done by one or more of the conspirators pursuant to the
scheme and in furtherance of the object, (4) which act results in damage to the plaintiff.”
See Macomber v. Travelers Property and
Cas. Corp.
277 Conn. 617, 635-36, 894 A.2d 240 (2006).
688 CASE PRINTOUTS TO ACCOMPANY BUSINESS LAW
granted because Halo lacks standing to raise that claim.
B. New Empagio’s Allegations
In October 2008, New Empagio filed a motion to intervene as an additional plaintiff (doc. # 137). In its motion, New Empagio
alleges that its claims arise out of the same transaction or occurrence as Halo’s claims. The Primus Group objected (doc. # 142),
arguing that the motion fails because plaintiffs improperly filed their complaint. The motion to intervene was granted in May 2009
less than it would have received but for the defendants’ collective misconduct. Because New Empagio pleads facts that plausibly
make out a claim for relief under CUTPA for tortious interference and conspiracy, the Primus Group’s motion to dismiss the Third
Count is denied.
With respect to the Fifth Count of the complaint, to establish a claim for civil conspiracy, New Empagio must show that the Primus
Group, and at least one other party, conspired to engage in an unlawful act and at least one or more of the conspirators acted in
furtherance of the scheme, resulting in damage to the plaintiff.
See Macomber v. Travelers Property and Cas. Corp.,
277 Conn. at
635-36, 894 A.2d 240. In order for New Empagio to properly plead a conspiracy claim it must allege conspiracy “plus.”
See Harp v.
King,
266 Conn. at 779, 835 A.2d 953. Here, the plus is the tortious interference. Because New Empagio alleges facts supporting
its tortious interference claim, it must show that it also pleads facts supporting the elements of a civil conspiracy claim.
Taking all facts in the complaint as true, the Primus Group conspired with the Cooper Group to tortiously interfere in the sale of