AHBP LLC v. Lynd Co.

649 F.Supp.3d 371

AHBP LLC, Plaintiff, v. The LYND COMPANY, Bio Supplies LLC, Via Clean Technologies LLC, Defendants.

SA-22-CV-00096-XR

United States District Court, W.D. Texas, San Antonio Division

Signed January 9, 2023

Darren Oved, Glen Lenihan, Jennifer R. Pierce, Terrence A. Oved, Oved & Oved LLP, New York, NY, Robert A. Bragalone, Gordon Rees Scully Mansukhani LLP, Dallas, TX, for Plaintiff.

Brendan Hoffman Little, Richard M. Scherer, Jr., Lippes Mathias LLP, Buffalo, NY, for Defendants The Lynd Company, Bio Supplies LLC.

Lisa A. Lori, Pro Hac Vice, William J. Clements, Klehr Harrison Harvey Branzburg LLP, Philadelphia, PA, Rick Harrison, Victoria Harrison, Waller Lansden Dortch & Davis, LLP, Austin, TX, for Defendant Via Clean Technologies LLC.

AMENDED ORDER ON MOTION TO DISMISS

XAVIER RODRIGUEZ, UNITED STATES DISTRICT JUDGE

On this date, the Court considered the motion to dismiss filed by Defendants The Lynd Company and Bio Supplies LLC (ECF No. 27), Plaintiff's response (ECF No. 34), Defendants' reply (ECF No. 35), and the parties' arguments at the hearing held on June 14, 2022. After careful consideration, the Court issues the following amended order. amended order.¹

BACKGROUND

In the summer of 2020, in the midst of the ongoing COVID-19 pandemic, Plaintiff AHBP, LLC ("AHBP") began negotiating with Defendants The Lynd Company ("Lynd") and Bio Supplies LLC ("Bio Supplies," and, together with Lynd "the Lynd Defendants") for the exclusive license to market and sell a surface disinfectant/cleaner known as "Bioprotect 500" (the "Product") in Argentina. ECF No. 25 ¶ 1. Plaintiff alleges that the Lynd Defendants made false representations about the quality of the Product, including that it was effective against the virus that causes COVID-19 and that it would meet the governmental standards for approval by Argentina's National Administration of Drugs, Foods and Medical Devices ("ANMAT"), as required to sell the Product in Argentina. Id. ¶ 2.

I. Formation of Bio Supplies and Publication of Press Release

Plaintiff alleges that, on May 5, 2020, the owners of the Lynd Company, Adam Lynd and Matthew Merritt, caused the incorporation of Bio Supplies, LLC on May 5, 2020, as "a shell company to insulate The Lynd Company from any and all liability arising from the Product." Id. ¶ 13. The Lynd Defendants have a substantial overlap in ownership, management, officers, and employees, including Adam Lynd and Matthew Merritt. Id. ¶ 9. Plaintiff alleges that this overlap also extends to day-to-day operations: the owners, directors, and employees of both entities use Lynd email addresses to conduct business purportedly on behalf of Bio Supplies; Bio Supplies uses Lynd's office to conduct business; and Lynd uses its own assets, resources, and finances to operate Bio Supplies while collecting its profits. Id. ¶¶ 9, 16-19.

On May 21, 2020, approximately two weeks after Bio Supplies was formed, Lynd issued a press release for the Product (the "Press Release"), titled "LYND To Disinfect & Protect Apartments with BIOPROTECTUs System." Id. ¶ 14. In the Press Release, Lynd announced its own purported use of the Product, advertised the Product as effective against the coronavirus, and directed potential purchasers to purchase the Product "through www.biosupplies.com." Id. The Press Release did not disclose that Lynd and its owners also owned and controlled Bio Supplies. Id. Thus, Plaintiff contends that readers "would have been left with the impression that The Lynd Company was an uninvolved third-party that was so impressed with the Product, it issued its own press release." Id. "In reality," Plaintiff alleges, "the Press Release was deliberately designed to hide The Lynd Company's self-interest in increasing sales of the Product and dupe unsuspecting customers into purchasing the Product to increase The Lynd Company's revenue." Id.

II. Negotiations and Contract Between Plaintiff and the Lynd Defendants

As the COVID-19 pandemic ravaged Argentina in the summer of 2020, Plaintiff began negotiating with Bio Supplies, primarily through Matthew Merritt (an owner and officer of both Bio Supplies and The Lynd Company), to market and sell Bioprotect 500, which Bio Supplies and Via Clean held out as a disinfectant/cleaner manufactured by Via Clean that would effectively destroy the virus that causes COVID-19. Id. ¶ 15.

Plaintiff alleges that, during these negotiations, Bio Supplies, acting through officers and employees of The Lynd Company, held itself out to Plaintiff as being one with the Lynd Company. Id. ¶ 16. For example, all of Bio Supplies' email communications to Plaintiff were sent from email accounts of employees of The Lynd Company and contained The Lynd Company's information in the emails' signature blocks. Id. Moreover, David Lynd represented to Plaintiff during telephone calls in August and September 2020 that The Lynd Company intended to buy Via Clean, so that The Lynd Company would have full vertical control over the Product from manufacture—through Via Clean—to distribution and licensing—through Bio Supplies—implying that The Lynd Company already dominated and controlled Bio Supplies. David Lynd also allegedly advised Plaintiff through a Lynd email account, that "we" (i.e., Lynd and Bio Supplies) distribute and sell the Product. Id. ¶ 18. In short, BioSupplies' statements and conduct, made by and through Lynd employees, allegedly "caused Plaintiff to believe that The Lynd Company stood behind Bio Supplies in terms of providing resources and operations for the distribution of the Product." Id. ¶ 19.

Plaintiff alleges that, during contract negotiations throughout August and September 2020, it advised Bio Supplies that it needed certain information about the Product's composition, manufacturing and quality controls, toxicology, and shelf life in order to obtain approval from ANMAT (Argentina's version of the FDA) to sell the Product in Argentina. Id. ¶ 20. Bio Supplies responded that it could not provide the requested information due to confidentiality concerns. Plaintiff repeatedly advised that receipt of this information was vital to Plaintiff's decision to sign an agreement to purchase, sell, and market the Product. Id.

Plaintiff asserts that Bio Supplies—through Lynd Company employees David Lynd, Matthew Merritt, and Christopher Jett, each of whom used Lynd Company email addresses—repeatedly confirmed to AHBP over those two months that the Product would meet the applicable standards and promised to provide the relevant information once the parties signed a written contract. Id. ¶ 21. Despite these representations, Plaintiff alleges that Bio Supplies knew that the Product would not, and could not, perform as Defendants claimed and could not meet ANMAT's standards to allow the Product to be sold in Argentina. Id. ¶ 23. Indeed, according to Plaintiff, Bio Supplies at all times "intended to defraud Plaintiff by providing fraudulent, doctored laboratory reports that grossly and falsely exaggerated the efficacy of the Product." Id.

Unaware of this alleged scheme, Plaintiff relied on Bio Supplies' representations concerning the Product and its quality standards, "and with no way to verify them," Plaintiff entered into an Exclusivity and Resale Agreement with Bio Supplies, dated October 2020 (the "Agreement"). Id. ¶¶ 22, 24. Under the Agreement, Bio Supplies agreed to grant Plaintiff an exclusive license to sell the Product in Argentina. Id. ¶ 25. In return, the Agreement required Plaintiff to purchase no less than $100,000 worth of the Product from Bio Supplies within 45 days of execution of the Agreement and to spend no less than $350,000 to advertise and market the Product in Argentina, with additional, escalating Product purchase requirements thereafter. Id.

III. Defendants' Submission of Falsified Data to Plaintiff and ANMAT

Plaintiff alleges that, after entering into the Agreement, Bio Supplies—through Lynd officers and employees, including Matthew Merritt—repeatedly promised to provide AHBP with information supporting its purported two-year shelf life and identifying the Product's composition, manufacturing and quality controls, and toxicology. Id. ¶ 26. Relying on these promises, and to fulfill its contractual obligations under the Agreement, Plaintiff began preparing its media campaign to market and sell the Product, including by hiring employees and designers, consulting with lawyers, accountants, biologists, and virologists, renting warehouse and office space, and entering into contracts with buyers in Argentina. Id. ¶ 27.

Beginning on December 1, 2020, Bio Supplies, with the assistance of Via Clean, through its officer and general manager Joseph Raich, provided Plaintiff with some of the requested information, including several laboratory reports on the Product's efficacy and chemical composition. Id. ¶ 28. Finally, after repeated requests from Plaintiff, Bio Supplies and Via Clean sent a stability report (the "Report") on the Product performed by Cambridge Materials Testing ("Cambridge"), a Canadian laboratory, to ANMAT in support of Plaintiff's application to sell the Product in Argentina.

Id. Defendants also sent a copy of the Report to Plaintiff. Id.

After reviewing the Report, ANMAT posed a number of questions to Plaintiff about the Product, including "why the Product's 'DMODA' content was part of the calculation of the Product's 'TPOA' content." Id. ¶ 29. Plaintiff alleges that it asked BioSupplies for the information necessary to answer ANMAT's questions, but Bio Supplies failed to respond. Id. ¶ 30. To obtain answers, Plaintiff contacted Cambridge directly. Id. ¶ 31. Cambridge informed Plaintiff that the version of the Report that had been sent to Plaintiff and ANMAT was "not the same as what we had originally issued." Id. Cambridge observed that the product identification in the Report submitted to ANMAT was different, and pointed out that "the TPOA values in the Table on page 3 have been altered ......